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NYL Investors LLC
Fixed Income Investors
June 2020
NYL Investors LLC is a wholly owned subsidiary of New York Life Insurance Company.
Please see the last page for important disclosures regarding the information contained herein.
NYL Investors affiliates may develop and publish research that is independent of, and different than, the views expressed.
1Fixed Income Investors
Summary - as of June 30, 2020
− As the second quarter began, the devastation caused by the coronavirus continued to wreak havoc across the U.S., most notably in northeastern states such
as New York, New Jersey, and Massachusetts.
− On July 7th, the U.S. recorded over 60,000 new confirmed infections, a record for single-day total cases. Most of these cases have been younger individuals
who are more likely to recover from the virus.
− On June 17th, President Trump signed into law the Uyghur Human Rights Policy Act of 2020, sanctioning any Chinese official found guilty of suppressing the
country’s Uyghur Muslim minority.
− The U.S. and China have also sparred over Beijing’s recently passed national security law. The Trump administration believes the law will degrade the relative
autonomy the island of Hong Kong has enjoyed for so long.
− The most recent ISM Manufacturing report for the month of June rose 9.5 points to 52.6, the highest since April 2019.
− The ISM Non-Manufacturing Index, which constitutes nearly 70% of the U.S. economy, came in at 57.1 during the month of June, well above the 50.2
consensus economists were expecting.
− The unemployment rate dropped to 11.1% from 13.3% while the labor force participation rate jumped to 61.5%. This jobs report does not capture the recent
spike in cases and rolling back of reopening plans across several states.
− At its June meeting, the Federal Reserve (“the Fed”) held the target range for the federal funds rate steady at 0.00% - 0.25% while also sticking with their
current forward guidance and not adopting any new measures such as yield curve control or inflation targeting.
− The Fed expects the economy to contract by 6.5% in 2020, rebounding to 5% in 2021 and 3.5% in 2022, with longer run GDP at 1.8%. They have the
unemployment rate coming down to 9.3% by the end of the year and falling further to 5.5% by the end of 2022.
− Most Fed participants (15 out of 17) expect no hikes through 2022, reflecting the lower-for-longer mantra which has come to define the Fed.
− High Grade Credit was the best sector in the Bloomberg Barclays U.S. Aggregate Index during the quarter.
− At the index level, MBS, ABS, and CMBS experienced excess returns of 38 bps, 326 bps, and 323 bps, respectively. MBS returns were lackluster due to tighter
valuations and the massive fundamental headwind of prepayments.
− The Bloomberg Barclays Credit Index tightened 113 bps during the period, generating 771 bps in excess return.
− The Utility and Industrial sectors outpaced the broader market with 988 bps and 890 bps of excess return, respectively, while the Financial and Non-corporate
sectors returned 732 bps and 363 bps, respectively.
− High Grade supply surpassed $730 billion in the second quarter, bringing year-to-date issuance to $1.2 trillion, just shy of the annual record set in 2017.
Issuers were overly aggressive in accessing the market as they looked to term out commercial paper and pre-fund near-term maturities.
− As investor sentiment rapidly improved in the second quarter, investors moved down in quality enabling BBB-rated industrial issuers to outperform.
Source: Bloomberg, NYL Investors, Barclays – July 2020.
Past performance is not indicative of future results.
MBS – Mortgage-Backed Securities
CMBS – Commercial Mortgage-Backed Securities
ABS – Asset-Backed Securities
2Fixed Income Investors
Market Review - as of June 30, 2020
As the second quarter began, the devastation caused by the coronavirus continued to wreak havoc across the U.S., most
notably in northeastern states such as New York, New Jersey, and Massachusetts. The pandemic peaked in New York on
April 7th when the state recorded 598 deaths, a single-day record. Since then, both confirmed cases and deaths within the
state have steadily declined. Unfortunately, the virus has proven to be quite heterogenous and continues to infiltrate other
parts of the country. States such as Texas, Arizona, and Florida, which were quicker to reopen their economies, have seen
large spikes recently in both confirmed cases and hospitalizations. The large jump in infections has caused a pause and even
a rolling back of reopenings for certain social gathering spots such as bars, restaurants, and gyms. On July 7th, the U.S.
recorded over 60,000 new confirmed infections, a record for single-day total cases. Unlike what we saw in late March and
early April, most of these cases have been younger individuals who are more likely to recover from the virus. Because
COVID-related deaths usually lag confirmed infection by approximately three weeks, we will have to wait to see if the
change in demographics results in less deaths.
The second quarter was also notable for the escalation of tensions between the Trump administration and China. On June
17th, President Trump signed into law the Uyghur Human Rights Policy Act of 2020, sanctioning any Chinese official found
guilty of suppressing the country’s Uyghur Muslim minority. The U.S. and China have also sparred over Beijing’s recently
passed national security law. The Trump administration believes the law will degrade the relative autonomy the island of
Hong Kong has enjoyed for so long. The U.S. has responded to the national security law by revoking Hong Kong’s special
trading status as well as restricting certain high-tech exports to the island. The growing animosity between the two
superpowers brings into question whether the agreed-upon Phase I trade agreement can survive much longer.
Source: Bloomberg, NYL Investors, Barclays – July 2020.
Past performance is not indicative of future results.
NYL Investors affiliates may develop and publish research that is independent of, and different than, the views expressed.
3Fixed Income Investors
Market Review - as of June 30, 2020
While COVID-19 infections continue to reach new highs, investors and markets alike have been buoyed by the uptick in economic
activity experienced over the past six weeks. As states have reopened, both manufacturing and services have increased while
consumer confidence has exceeded expectations. The most recent ISM Manufacturing report for the month of June rose 9.5 points to
52.6, the highest since April 2019. The ISM Non-Manufacturing Index, which constitutes nearly 70% of the U.S. economy, came in at
57.1 during the month of June, well above the 50.2 consensus economists were expecting. While several economic indicators have
beaten expectations, as evidenced by the recent rise in the Citi economic surprise index, inflationary pressures remain muted. Core
PCE Deflator (YoY), the Federal Reserve’s (“the Fed’s”) preferred inflationary measure, came in at 1% during the month of May. Our
expectation is inflation will remain well below the Fed’s 2% symmetric goal over the foreseeable future. Interest rates should remain
low and pricing pressures muted while the economy recovers from the most severe downturn since the Great Depression.
ISM Manufacturing PMI SA
65
Expansion Expansion
60
55
50
Contraction
45
40
Source: Bloomberg, July 2020 Source: Bloomberg, July 2020
Source: Bloomberg, NYL Investors, Barclays – July 2020.
Past performance is not indicative of future results.
NYL Investors affiliates may develop and publish research that is independent of, and different than, the views expressed.
4Fixed Income Investors
Market Review - as of June 30, 2020
During the month of June, the economy added 4.8 million jobs, well above the 3.2 million expected. The unemployment rate
dropped to 11.1% from 13.3% while the labor force participation rate jumped to 61.5%. Overall, the June jobs report was
positive and reflects rehiring of workers after the initial March/April spike in confirmed cases. We would caution that this
jobs report does not capture the recent spike in cases and rolling back of reopening plans across several states. We will not
know how much economic activity has been curtailed over the past two weeks until more labor market data is released over
the coming months.
U.S. Unemployment Rate
16%
15%
14%
13%
12%
11%
10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: Bureau of Labor Statistics; seasonally adjusted, July 2020
Unemployment Rate measures the total unemployed as a percent of the civilian labor force (official unemployment rate).
Source: Bloomberg, NYL Investors, Barclays – July 2020.
Past performance is not indicative of future results.
NYL Investors affiliates may develop and publish research that is independent of, and different than, the views expressed.
5Fixed Income Investors
Market Review - as of June 30, 2020
The Fed met two times during the second quarter, in April and June. During the June meeting, they held the target range for the
federal funds rate steady at 0.00% - 0.25% while also sticking with their current forward guidance and not adopting any new
measures such as yield curve control or inflation targeting. The June meeting was notable because it was the first time since
December the committee released their updated dot plot and economic projections. Most Fed participants (15 out of 17) expect no
hikes through 2022, reflecting the lower-for-longer mantra which has come to define the Fed. They did leave their longer-run federal
funds rate unchanged at 2.5% but obviously are not expecting to get back to that level any time soon. As far as the economic
projections, the Fed expects the economy to contract by 6.5% in 2020, rebounding to 5% in 2021 and 3.5% in 2022, with longer-run
GDP at 1.8%. They have the unemployment rate coming down to 9.3% by the end of the year and falling further to 5.5% by the end
of 2022. Lastly, their inflation projections are markedly lower for 2020 and slightly lower for 2021 and 2022. Most of this downgrade in
inflation is attributable to depressed prices as a result of the pandemic as well as lower oil prices on the back of the supply and
demand shocks that the market has seen over the past two months.
During the second quarter, interest rates were rangebound, and the curve was steeper, led by the front end. The two-year part of the
curve moved 10 bps lower while the thirty-year part of the curve moved 9 bps higher. High Grade Credit was the best sector in the
Bloomberg Barclays U.S. Aggregate Index during the quarter. Within securitized products, ABS produced 326 bps of excess return,
outperforming both MBS and CMBS.
US Treasury Yields
Term 6/30/2020 Change vs. 1 Month Ago Change vs. 3 Months Ago Change YTD Change vs. 1 Year Ago
1Y 0.15% -1 -1 -142 -178
2Y 0.15% -1 -10 -142 -161
3Y 0.17% -2 -12 -144 -153
5Y 0.29% -2 -9 -140 -148
7Y 0.49% -1 -5 -134 -138
10Y 0.66% 0 -1 -126 -135
30Y 1.41% 0 9 -98 -112
2s10s 51 2 8 16 26
10s30s 75 0 10 28 23
Source: Bloomberg, NYL Investors, Barclays – July 2020.
MBS – Mortgage-Backed Securities
CMBS – Commercial Mortgage-Backed Securities
ABS – Asset-Backed Securities
Past performance is not indicative of future results.
NYL Investors affiliates may develop and publish research that is independent of, and different than, the views expressed.
6Fixed Income Investors
Market Review - as of June 30, 2020
High Grade Credit was at the leading edge of the historic rally across fixed income assets in the second quarter. The
Bloomberg Barclays Credit Index tightened 113 bps during the period, generating 771 bps in excess return. The rally was
broad based, but the Utility and Industrial sectors outpaced the broader market with 988 bps and 890 bps of excess return,
respectively, while the Financial and Non-corporate sectors returned 732 bps and 363 bps, respectively. The peak in credit
spreads during the height of the volatility occurred on March 23rd, which also happened to be the same day the Fed
announced its decision to create two programs to support the primary and secondary markets for short-duration corporate
bonds. This watershed moment emboldened credit investors to re-engage the asset class while also attracting non-
traditional and overseas investors in a way the market has never witnessed. Sectors which experienced the most severe
stress and spread widening in the first quarter became the best performers during the second quarter with the Energy and
Basics sub-sectors leading the way. Furthermore, the initial re-openings were met with optimism by investors and forced
market participants to pursue corporate credit even as all-in yields quickly moved toward historically low levels.
US Fixed Income Excess Returns
Index 1-Month 3-Month YTD 1-Year
Credit Aaa 0.17% 1.27% -1.13% -0.71%
Credit Aa 1.03% 4.56% -3.32% -2.13%
Credit A 1.54% 6.54% -3.84% -1.84%
Credit Baa 2.38% 10.70% -7.55% -4.32%
Finance 2.30% 7.32% -3.41% -1.05%
Industrial 1.72% 8.90% -6.38% -3.71%
Utility 1.67% 9.88% -5.82% -3.41%
Supranational 0.12% 0.44% -0.19% -0.11%
Sovereign 1.12% 6.40% -8.68% -5.98%
6/30/2020
Source: Bloomberg, NYL Investors, Barclays – July 2020.
Past performance is not indicative of future results.
NYL Investors affiliates may develop and publish research that is independent of, and different than, the views expressed.
7Fixed Income Investors
Market Review - as of June 30, 2020
The intervention by the Fed in the corporate market evolved throughout the second quarter, but they have succeeded in
their primary goal, which was to return market functionality to more normalized levels. Not only have spreads tightened but
issuance has increased exponentially, thereby aiding corporations in need of capital at this historically uncertain moment for
the economy. High Grade supply surpassed $730 billion in the second quarter, bringing year-to-date issuance to $1.2 trillion,
just shy of the annual record set in 2017. Issuers were overly aggressive in accessing the market as they looked to term out
commercial paper and pre-fund near-term maturities. Their ability to do so was greatly enhanced by the announcement of
the Fed’s corporate bond facilities and instrumental in corporate America’s ability to withstand this severe and hopefully
short-term downturn. The industrial segment of the corporate market remains the most active and comprises nearly 50% of
the issuance for the year. Investor demand for corporate credit enabled the supply to be easily absorbed, and new issue
allocations were challenging throughout the quarter even as concessions compressed in the latter half of the period. The
new issue calendar will likely decline substantially in the second half of the year as issuers have accelerated their funding
plans.
As investor sentiment rapidly improved in the second quarter, investors moved down in quality, enabling BBB-rated industrial
issuers to outperform. High-beta credits benefitted from investor need for yield and incremental spread. The Fed’s credit
facilities, having been focused on maturities shorter than five years, steepened credit curves as the demand for front-end
credit increased substantially and market participants sought to invest alongside the Fed.
Source: Bloomberg, NYL Investors, Barclays – July 2020.
Past performance is not indicative of future results.
NYL Investors affiliates may develop and publish research that is independent of, and different than, the views expressed.
8Fixed Income Investors
Market Review - as of June 30, 2020
“Don’t fight the Fed” was the song securitized products investors sang at the outset of the second quarter. The Fed’s existing presence
in the MBS market in addition to the looming Term Asset-Backed Securities Loan Facility (TALF) 2.0 subscription date had pushed
spreads considerably tighter than the wides set in March, especially when compared to corporate credit. Starting April at a spread of
260 bps, High Grade Credit had retraced “only” about one-third of their March widening versus its pre-COVID tights. In the example of
Credit Cards and Autos, these sub-sectors began the second quarter having retraced about 75% of their March widening, at levels of
S+85 bps and S+100 bps, respectively. Recent vintage CMBS AAA last cash flows, which began the quarter trading around S+200 bps,
had reversed just over half of their March widening. In the case of MBS, where the Fed was already involved, the MBS index began the
quarter at an OAS of 70 bps, only 15 bps wider than late-February levels.
At the index level, MBS, ABS, and CMBS experienced excess returns of 38 bps, 326 bps, and 323 bps, respectively, for the quarter.
MBS returns were lackluster not only from starting at much tighter valuations but also due to the massive fundamental headwind of
prepayments. Both prepayment reports received during the quarter came in much faster than street expectations to the tune of
10-15 percentage points. Nonetheless, the need to reinvest paydowns as a result of these fast prepayments coupled with the Fed
adding net $40 billion a month (gross purchases of $2.5 billion/day) kept investors in the game. Given prepayments and the Fed
purchasing 3.0s and lower for the bulk of quarter, there was a large down in coupon emphasis from investors, and lower coupons
largely outperformed. The overall MBS index OAS ended the quarter unchanged.
US Fixed Income Excess Returns
Index 1-Month 3-Month YTD 1-Year
Agg 0.56% 2.45% -1.65% -0.72%
Agency 0.14% 0.45% -0.60% -0.32%
Credit 1.76% 7.71% -5.32% -2.94%
MBS -0.13% 0.38% -0.45% 0.25%
ABS 1.03% 3.26% 0.02% 0.20%
CMBS 1.52% 3.23% -2.64% -2.43%
USD EM 2.40% 9.33% -9.08% -7.25%
6/30/2020
Source: Bloomberg, NYL Investors, Barclays – July 2020.
MBS – Mortgage-Backed Securities
CMBS – Commercial Mortgage-Backed Securities
ABS – Asset-Backed Securities
Past performance is not indicative of future results.
NYL Investors affiliates may develop and publish research that is independent of, and different than, the views expressed.
9Fixed Income Investors
Market Review - as of June 30, 2020
While the prospect of TALF 2.0 becoming fully operational certainly propelled ABS and CMBS spreads at the outset, the lack
of new issue and lighter secondary volumes pushed spreads even tighter. Additionally, fiscal stimulus resulted in robust
remittance reports that reflected limited or contained delinquencies in May and June, giving investors comfort as it pertained
to bond fundamentals. At this point, much of the TALF 2.0-eligible ABS universe trades at negative carry versus funding
costs, but there remains some spread to be captured among certain lagging shelves and vintages within CMBS which still
trade around S+150 bps. Going forward, the vast uncertainty around commercial real estate performance will be the sector’s
biggest headwind whereas, in ABS, all signs point to stability especially in the context of structural protection.
Source: Bloomberg, NYL Investors, Barclays – July 2020.
CMBS – Commercial Mortgage-Backed Securities
ABS – Asset-Backed Securities
Past performance is not indicative of future results.
NYL Investors affiliates may develop and publish research that is independent of, and different than, the views expressed.
10Fixed Income Investors
Supplemental Data - as of June 30, 2020
US Fixed Income Total Returns
Index 1-Month 3-Month YTD 1-Year
Agg 0.63% 2.90% 6.14% 8.74%
Treasury 0.09% 0.48% 8.71% 10.45%
Agency 0.19% 0.88% 5.06% 6.79%
Credit 1.83% 8.22% 4.82% 9.07%
MBS -0.09% 0.67% 3.50% 5.67%
ABS 1.07% 3.54% 3.32% 4.68%
CMBS 1.62% 3.95% 5.18% 6.83%
USD EM 2.49% 10.00% -0.43% 2.96%
6/30/2020
US Fixed Income Total Returns
Index 1-Month 3-Month YTD 1-Year
Credit Aaa 0.24% 1.71% 5.74% 7.65%
Credit Aa 1.09% 5.01% 6.62% 9.60%
Credit A 1.60% 7.04% 6.50% 10.43%
Credit Baa 2.45% 11.24% 3.02% 8.19%
Finance 2.38% 7.87% 4.97% 8.95%
Industrial 1.78% 9.41% 4.73% 9.43%
Utility 1.72% 10.31% 7.71% 12.55%
Supranational 0.19% 0.91% 4.75% 6.08%
Sovereign 1.17% 6.92% 3.49% 8.34%
6/30/2020
Source: Bloomberg, NYL Investors, Barclays – July 2020.
Past performance is not indicative of future results.
11Fixed Income Investors
Supplemental Data - as of June 30, 2020
US Fixed Income Spreads
Index 6/30/2020 Change vs. 1 Month Ago Change vs. 3 Months Ago Change YTD Change vs. 1 Year Ago
Agg 68 -8 -27 29 22
Agency 21 -2 -28 11 7
Credit 142 -22 -113 52 33
MBS 70 -3 10 31 24
ABS 68 -43 -145 24 27
CMBS 132 -26 -56 60 63
USD EM 408 -40 -249 107 117
US Fixed Income Spreads
Index 6/30/2020 Change vs. 1 Month Ago Change vs. 3 Months Ago Change YTD Change vs. 1 Year Ago
Credit Aaa 29 -3 -21 12 10
Credit Aa 88 -8 -66 36 26
Credit A 113 -18 -94 43 26
Credit Baa 197 -33 -163 72 46
Finance 139 -35 -129 59 36
Industrial 156 -20 -120 57 36
Utility 146 -15 -108 49 31
Supranational 17 -2 -15 9 8
Sovereign 196 -10 -64 92 74
Source: Bloomberg, NYL Investors, Barclays – July 2020.
Past performance is not indicative of future results.
12Fixed Income Investors
Supplemental Data - as of June 30, 2020
Global Equity Returns
Stock Index 6/30/2020 1-Month 3-Month YTD 1-Year
S&P 500 3100 1.99% 20.54% -3.08% 7.51%
Nasdaq 10059 6.07% 30.95% 12.67% 26.94%
STOXX 360 3.06% 13.49% -12.12% -4.30%
FTSE 100 6170 1.66% 9.15% -16.87% -13.80%
DAX 12311 6.25% 23.90% -7.08% -0.71%
Italy 19376 6.47% 13.63% -17.57% -8.76%
Nikkei 22288 2.01% 17.97% -4.71% 7.01%
China 2985 4.64% 8.52% -2.15% 0.19%
6/30/2020
Source: Bloomberg, NYL Investors, Barclays – July 2020.
Past performance is not indicative of future results.
13Fixed Income Investors
Supplemental Data - as of June 30, 2020
Europe
Stock Index Last 1-Month 3-Month YTD 1-Year
STOXX 360 3.06% 13.49% -12.12% -4.30%
FTSE 100 6170 1.66% 9.15% -16.87% -13.80%
DAX 12311 6.25% 23.90% -7.08% -0.71%
CAC 40 4936 5.38% 13.14% -16.54% -9.68%
Portugal 4390 1.38% 7.88% -15.80% -14.54%
Italy 19376 6.47% 13.63% -17.57% -8.76%
Ireland 5974 1.45% 15.97% -16.02% -1.53%
Greece 639 -1.15% 15.63% -29.14% -23.94%
Spain 7231 2.62% 7.77% -23.12% -19.03%
Russia 2743 0.31% 9.34% -9.94% -0.82%
6/30/2020
International
Stock Index Last 1-Month 3-Month YTD 1-Year
MSCI EAFE 1781 3.40% 14.88% -11.34% -5.13%
MSCI EM 995 7.35% 18.08% -9.78% -3.39%
MSCI FM 480 1.68% 14.75% -15.77% -11.17%
MSCI FM100 1040 1.70% 13.11% -17.01% -13.69%
6/30/2020
Source: Bloomberg, NYL Investors, Barclays – July 2020.
Last represents month-end close of business for June.
Past performance is not indicative of future results.
14Fixed Income Investors
Important Disclosures
The Barclays U.S. Aggregate Index is a representative measure of the investment-grade domestic bond market.
The Barclays Credit Index is a representative measure of the U.S. credit market, which includes publicly issued-U.S. corporate and specified foreign debentures and secured notes that meet specific
maturity, liquidity, and quality requirements.
Opinions expressed are current opinions as of the date appearing in this material only. No part of this material may be i) co pied, photocopied of duplicated in any form, by any means, or ii) redistributed
without NYL Investors’ prior consent.
The information presented herein is current only as of the date hereof, and is subject to change without notice as market and economic conditions change. Any forward-looking statements are based on a
number of assumptions concerning future events and although we believe that the sources used are reliable, the information co ntained in these materials has not been independently verified and its
accuracy is not guaranteed. In addition, there is no guarantee that market expectations will be achieved.
References to market indices, benchmarks or other measures of relative market performance over a specified period of time are provided for information purposes and do not imply that a managed account
will achieve returns, volatility or other results similar to an index. The charts and graphs provided herein are for illustrative purposes only to assist readers in understanding economic trends and conditions
but must not be used, or relied upon, to make investment decisions.
Historical returns are provided for illustrative and informational purposes only and the value of investments may fluctuate. Past performance is not indicative of future results. The performance tables and
related charts contained herein do not reflect the deduction of investment management fees. The investment advisory fees and any other expenses a client may incur in the management of its account will
reduce a client’s return. Indexes are unmanaged and cannot be invested in directly.
Fixed Income Investors is an investment group within NYL Investors LLC. NYL Investors LLC is a direct wholly-owned subsidiary of New York Life Insurance Company.
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