Quarterly Economic Report - Silicon Valley Bank · The Organization for Economic Cooperation and...
33
Quarterly Economic Report Inside views on economic and market factors affecting global markets and business health Q3 2019
Quarterly Economic Report - Silicon Valley Bank · The Organization for Economic Cooperation and Development (OECD) projects global real GDP to rise by 3.2 percent, which is 0.1 percent
Momentum from the first quarter continued in US equity markets in the second quarter of the year with the SampP 500 increasing 379 percent on a total return basis At the same time bond markets rallied in anticipation of lower interest rates and impending monetary policy support with the 10-year Treasury moving lower by nearly 40 basis points from end of March to end of June Similarly policy-sensitive 2-year Treasury yields ended lower by nearly 51 basis points as the market began pricing in anticipation of steep reductions in the federal funds rate for the remainder of 2019 and into early 2020
At the same time trade uncertainty continued without resolution of the Sino-American trade war despite an agreement at the G20 summit to resume trade talks Earlier in the quarter the escalation of tariffs against certain Chinese imports along with a brief but impactful tariff-spat with Mexico shook market confidence that a near term trade solution could be around the corner Inflation remained muted with core PCE hovering near 16 percent throughout much of the quarter weighing on the minds of Fed officials targeting 2 percent US labor market strength remained a much needed bright spot among the data with non-farm payrolls averaging close to 170000 per month over the quarter
Global growth appeared to slow with slowing manufacturing data becoming a focal point Central banks globally signaled their willingness to ease policy further through rate cuts or resumption of asset purchase programs if necessary As the year progresses economic data will provide more information about the appropriate magnitude of such central bank responses and whether the severity of such responses will sustain economic activity
Economic data in the first half of the year continued to be mixed The effects of tax cuts continued to fade while trade tensions escalated further dampening the economic outlook As signaled the Fed shifted into dovish gear in an effort to sustain economic growth in light of increased headwinds The first quarter of 2019 showed strong growth with GDP at 31 percent however a significant portion was driven by inventory buildup as companies added to inventory preemptively as trade tensions heightened We expect growth to moderate in Q2 as the economic outlook is clouded by uncertainties regarding trade policies Meanwhile labor remained steady with an average of 170000 jobs per month added in the first half of the year and the unemployment rate close to a 50-year low On the other side of the Fedrsquos dual mandate ndash inflation price pressures have been subdued falling below the Fedrsquos target range of 2 percent Muted inflation pressures appear to be providing fuel for the Fed to cut rates before year-end Looking ahead deteriorating business sentiment amid rising trade tensions combined with muted inflation pressures and increased risk to the economic outlook appear to support the Fedrsquos shift to a more dovish tone and potential rate cuts
Domestic economy
0719-0077MS-063020
First quarter GDP came in strong at 31 percent Growth in Q1 was largely driven by inventory investment and exports while consumption had a notably weak showing Expectations are for growth to moderate as the year progresses now that the benefits of tax reform have faded and global growth is slowing amid ongoing uncertainty over global trade
Sources Bureau of Economic Analysis Congressional Budget Office and SVB Asset Management Data as of 6302019 GDP values shown in legend are percent change vs prior quarter on an annualized basis
Consumption Expect a reboundConsumer activity continued to slow in Q1 increasing only 09 percent vs 25 percent the prior quarter Spending in Q1 was the slowest in a year Meanwhile household balance sheets remain healthy with a stable ratio of debt to disposable income In the latter half of Q2 retail sales picked up reflecting an improvement over earlier in the year which should translate into stronger consumption in Q2 data Finally vehicle sales continue to maintain a healthy level
Consumption Overview
Sources Bloomberg and SVB Asset Management Data as of 722019
Retail and Food Services Sales
80
90
100
110
120
130
140
0
1
2
3
4
5
2011 2012 2013 2014 2015 2016 2017 2018 2019
Perc
ent
Perc
ent
Personal consumption Household debt to disposable income ratio
Employment Remains solidIn the first half of 2019 the employment growth averaged about 170000 jobs per month While this was a deceleration compared to last year job growth is still on solid footing In addition the unemployment rate continues to hover around a 50-year low at 37 percent while the participation rate for prime-age labor force remains steady
Labor Force Participation
Sources US Bureau of Labor Statistics Bloomberg and SVB Asset ManagementData as of 752019
Inflation SubduedThe downward trend in inflation leaves room for the Fed to cut rates before year-end Hourly wages have moderated further alleviating the potential for inflationary pressure Meanwhile oil prices have rebounded from this yearrsquos lows due to geopolitical events affecting supply however falling demand is keeping oil prices at bay
Core PCE
Sources Bloomberg and SVB Asset Management Data as of 722019
Business Outlook Uncertainty loomsEscalating trade tensions are weighing on business confidence and creating a wave of uncertainty causing companies to trim forecasts for 2019 In the last 12 months regional Fed surveys reflect an overall decline in business sentiment
Business Confidence Index
Sources Bloomberg OECD and Business Confidence Index Data as of 732019Heatmap colors based on the indices and time periods shown
Global economyA sluggish first half of 2019 wonrsquot stop the global economy from achieving another year of growth though the pace of the expansion will be slower than the prior year Flagging economic data has prompted economists to lower forecasts and has alerted policy makers to prepare for action in support of growth The Organization for Economic Cooperation and Development (OECD) projects global real GDP to rise by 32 percent which is 01 percent lower than their prior forecast and 04 percent lower than 2018 Trade policy quarrels have significantly impacted manufacturing as new orders have declined due to uncertainty about the timing of tariffs restrictions on goods and companies have contemplated changes to their supply chains Manufacturing activity on a global basis slipped into contraction territory at the end the second quarter of the year according to the JPMorgan Global Manufacturing PMI On a composite basis the JPMorgan Global PMI indicates the global economy is still in expansion mode supported by service activity With capital expenditures and industrial production shaky business consumption has lagged consumer demand which has been supported by solid employment conditions Retail sales in emerging economies have held up well although growth has fallen recently in China Spending growth was strong in most advanced economies and had a firm rebound in the second quarter With policy responses expected to emerge the pace of economic activity should pick up toward year-end as the central banks manage through trade policy wrangling and political developments
0719-0077MS-063020
World Trade Stalls Amid Trade Friction Emerging Economies Are Key Consumers
Global Trade SlowsTrade policy uncertainty has begun to weigh on trade activity Tariff increases that are enacted and sustained will negatively impact economic growth over the medium term although supply chains and manufacturing infrastructure should adjust longer term The health of emerging economies which are key destinations for exports and major sources of growth for corporations in developed economies remain in focus
Sources CPB Netherlands Bureau for Economic Policy Analysis and SVB Asset Management Data as of 6212019
Exports Decline Amid Trade Policy DisputesThe value of exports from advanced economies has fallen since the start of the year contributing to worries that growth will decelerate In the US imports continue to outpace exports leading to a trade deficit that is wider than the prior year
Sources CPB Netherlands Bureau for Economic Policy Analysis US Census Bureau and SVB Asset Management Data as of 6212019
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
Momentum from the first quarter continued in US equity markets in the second quarter of the year with the SampP 500 increasing 379 percent on a total return basis At the same time bond markets rallied in anticipation of lower interest rates and impending monetary policy support with the 10-year Treasury moving lower by nearly 40 basis points from end of March to end of June Similarly policy-sensitive 2-year Treasury yields ended lower by nearly 51 basis points as the market began pricing in anticipation of steep reductions in the federal funds rate for the remainder of 2019 and into early 2020
At the same time trade uncertainty continued without resolution of the Sino-American trade war despite an agreement at the G20 summit to resume trade talks Earlier in the quarter the escalation of tariffs against certain Chinese imports along with a brief but impactful tariff-spat with Mexico shook market confidence that a near term trade solution could be around the corner Inflation remained muted with core PCE hovering near 16 percent throughout much of the quarter weighing on the minds of Fed officials targeting 2 percent US labor market strength remained a much needed bright spot among the data with non-farm payrolls averaging close to 170000 per month over the quarter
Global growth appeared to slow with slowing manufacturing data becoming a focal point Central banks globally signaled their willingness to ease policy further through rate cuts or resumption of asset purchase programs if necessary As the year progresses economic data will provide more information about the appropriate magnitude of such central bank responses and whether the severity of such responses will sustain economic activity
Economic data in the first half of the year continued to be mixed The effects of tax cuts continued to fade while trade tensions escalated further dampening the economic outlook As signaled the Fed shifted into dovish gear in an effort to sustain economic growth in light of increased headwinds The first quarter of 2019 showed strong growth with GDP at 31 percent however a significant portion was driven by inventory buildup as companies added to inventory preemptively as trade tensions heightened We expect growth to moderate in Q2 as the economic outlook is clouded by uncertainties regarding trade policies Meanwhile labor remained steady with an average of 170000 jobs per month added in the first half of the year and the unemployment rate close to a 50-year low On the other side of the Fedrsquos dual mandate ndash inflation price pressures have been subdued falling below the Fedrsquos target range of 2 percent Muted inflation pressures appear to be providing fuel for the Fed to cut rates before year-end Looking ahead deteriorating business sentiment amid rising trade tensions combined with muted inflation pressures and increased risk to the economic outlook appear to support the Fedrsquos shift to a more dovish tone and potential rate cuts
Domestic economy
0719-0077MS-063020
First quarter GDP came in strong at 31 percent Growth in Q1 was largely driven by inventory investment and exports while consumption had a notably weak showing Expectations are for growth to moderate as the year progresses now that the benefits of tax reform have faded and global growth is slowing amid ongoing uncertainty over global trade
Sources Bureau of Economic Analysis Congressional Budget Office and SVB Asset Management Data as of 6302019 GDP values shown in legend are percent change vs prior quarter on an annualized basis
Consumption Expect a reboundConsumer activity continued to slow in Q1 increasing only 09 percent vs 25 percent the prior quarter Spending in Q1 was the slowest in a year Meanwhile household balance sheets remain healthy with a stable ratio of debt to disposable income In the latter half of Q2 retail sales picked up reflecting an improvement over earlier in the year which should translate into stronger consumption in Q2 data Finally vehicle sales continue to maintain a healthy level
Consumption Overview
Sources Bloomberg and SVB Asset Management Data as of 722019
Retail and Food Services Sales
80
90
100
110
120
130
140
0
1
2
3
4
5
2011 2012 2013 2014 2015 2016 2017 2018 2019
Perc
ent
Perc
ent
Personal consumption Household debt to disposable income ratio
Employment Remains solidIn the first half of 2019 the employment growth averaged about 170000 jobs per month While this was a deceleration compared to last year job growth is still on solid footing In addition the unemployment rate continues to hover around a 50-year low at 37 percent while the participation rate for prime-age labor force remains steady
Labor Force Participation
Sources US Bureau of Labor Statistics Bloomberg and SVB Asset ManagementData as of 752019
Inflation SubduedThe downward trend in inflation leaves room for the Fed to cut rates before year-end Hourly wages have moderated further alleviating the potential for inflationary pressure Meanwhile oil prices have rebounded from this yearrsquos lows due to geopolitical events affecting supply however falling demand is keeping oil prices at bay
Core PCE
Sources Bloomberg and SVB Asset Management Data as of 722019
Business Outlook Uncertainty loomsEscalating trade tensions are weighing on business confidence and creating a wave of uncertainty causing companies to trim forecasts for 2019 In the last 12 months regional Fed surveys reflect an overall decline in business sentiment
Business Confidence Index
Sources Bloomberg OECD and Business Confidence Index Data as of 732019Heatmap colors based on the indices and time periods shown
Global economyA sluggish first half of 2019 wonrsquot stop the global economy from achieving another year of growth though the pace of the expansion will be slower than the prior year Flagging economic data has prompted economists to lower forecasts and has alerted policy makers to prepare for action in support of growth The Organization for Economic Cooperation and Development (OECD) projects global real GDP to rise by 32 percent which is 01 percent lower than their prior forecast and 04 percent lower than 2018 Trade policy quarrels have significantly impacted manufacturing as new orders have declined due to uncertainty about the timing of tariffs restrictions on goods and companies have contemplated changes to their supply chains Manufacturing activity on a global basis slipped into contraction territory at the end the second quarter of the year according to the JPMorgan Global Manufacturing PMI On a composite basis the JPMorgan Global PMI indicates the global economy is still in expansion mode supported by service activity With capital expenditures and industrial production shaky business consumption has lagged consumer demand which has been supported by solid employment conditions Retail sales in emerging economies have held up well although growth has fallen recently in China Spending growth was strong in most advanced economies and had a firm rebound in the second quarter With policy responses expected to emerge the pace of economic activity should pick up toward year-end as the central banks manage through trade policy wrangling and political developments
0719-0077MS-063020
World Trade Stalls Amid Trade Friction Emerging Economies Are Key Consumers
Global Trade SlowsTrade policy uncertainty has begun to weigh on trade activity Tariff increases that are enacted and sustained will negatively impact economic growth over the medium term although supply chains and manufacturing infrastructure should adjust longer term The health of emerging economies which are key destinations for exports and major sources of growth for corporations in developed economies remain in focus
Sources CPB Netherlands Bureau for Economic Policy Analysis and SVB Asset Management Data as of 6212019
Exports Decline Amid Trade Policy DisputesThe value of exports from advanced economies has fallen since the start of the year contributing to worries that growth will decelerate In the US imports continue to outpace exports leading to a trade deficit that is wider than the prior year
Sources CPB Netherlands Bureau for Economic Policy Analysis US Census Bureau and SVB Asset Management Data as of 6212019
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
Momentum from the first quarter continued in US equity markets in the second quarter of the year with the SampP 500 increasing 379 percent on a total return basis At the same time bond markets rallied in anticipation of lower interest rates and impending monetary policy support with the 10-year Treasury moving lower by nearly 40 basis points from end of March to end of June Similarly policy-sensitive 2-year Treasury yields ended lower by nearly 51 basis points as the market began pricing in anticipation of steep reductions in the federal funds rate for the remainder of 2019 and into early 2020
At the same time trade uncertainty continued without resolution of the Sino-American trade war despite an agreement at the G20 summit to resume trade talks Earlier in the quarter the escalation of tariffs against certain Chinese imports along with a brief but impactful tariff-spat with Mexico shook market confidence that a near term trade solution could be around the corner Inflation remained muted with core PCE hovering near 16 percent throughout much of the quarter weighing on the minds of Fed officials targeting 2 percent US labor market strength remained a much needed bright spot among the data with non-farm payrolls averaging close to 170000 per month over the quarter
Global growth appeared to slow with slowing manufacturing data becoming a focal point Central banks globally signaled their willingness to ease policy further through rate cuts or resumption of asset purchase programs if necessary As the year progresses economic data will provide more information about the appropriate magnitude of such central bank responses and whether the severity of such responses will sustain economic activity
Economic data in the first half of the year continued to be mixed The effects of tax cuts continued to fade while trade tensions escalated further dampening the economic outlook As signaled the Fed shifted into dovish gear in an effort to sustain economic growth in light of increased headwinds The first quarter of 2019 showed strong growth with GDP at 31 percent however a significant portion was driven by inventory buildup as companies added to inventory preemptively as trade tensions heightened We expect growth to moderate in Q2 as the economic outlook is clouded by uncertainties regarding trade policies Meanwhile labor remained steady with an average of 170000 jobs per month added in the first half of the year and the unemployment rate close to a 50-year low On the other side of the Fedrsquos dual mandate ndash inflation price pressures have been subdued falling below the Fedrsquos target range of 2 percent Muted inflation pressures appear to be providing fuel for the Fed to cut rates before year-end Looking ahead deteriorating business sentiment amid rising trade tensions combined with muted inflation pressures and increased risk to the economic outlook appear to support the Fedrsquos shift to a more dovish tone and potential rate cuts
Domestic economy
0719-0077MS-063020
First quarter GDP came in strong at 31 percent Growth in Q1 was largely driven by inventory investment and exports while consumption had a notably weak showing Expectations are for growth to moderate as the year progresses now that the benefits of tax reform have faded and global growth is slowing amid ongoing uncertainty over global trade
Sources Bureau of Economic Analysis Congressional Budget Office and SVB Asset Management Data as of 6302019 GDP values shown in legend are percent change vs prior quarter on an annualized basis
Consumption Expect a reboundConsumer activity continued to slow in Q1 increasing only 09 percent vs 25 percent the prior quarter Spending in Q1 was the slowest in a year Meanwhile household balance sheets remain healthy with a stable ratio of debt to disposable income In the latter half of Q2 retail sales picked up reflecting an improvement over earlier in the year which should translate into stronger consumption in Q2 data Finally vehicle sales continue to maintain a healthy level
Consumption Overview
Sources Bloomberg and SVB Asset Management Data as of 722019
Retail and Food Services Sales
80
90
100
110
120
130
140
0
1
2
3
4
5
2011 2012 2013 2014 2015 2016 2017 2018 2019
Perc
ent
Perc
ent
Personal consumption Household debt to disposable income ratio
Employment Remains solidIn the first half of 2019 the employment growth averaged about 170000 jobs per month While this was a deceleration compared to last year job growth is still on solid footing In addition the unemployment rate continues to hover around a 50-year low at 37 percent while the participation rate for prime-age labor force remains steady
Labor Force Participation
Sources US Bureau of Labor Statistics Bloomberg and SVB Asset ManagementData as of 752019
Inflation SubduedThe downward trend in inflation leaves room for the Fed to cut rates before year-end Hourly wages have moderated further alleviating the potential for inflationary pressure Meanwhile oil prices have rebounded from this yearrsquos lows due to geopolitical events affecting supply however falling demand is keeping oil prices at bay
Core PCE
Sources Bloomberg and SVB Asset Management Data as of 722019
Business Outlook Uncertainty loomsEscalating trade tensions are weighing on business confidence and creating a wave of uncertainty causing companies to trim forecasts for 2019 In the last 12 months regional Fed surveys reflect an overall decline in business sentiment
Business Confidence Index
Sources Bloomberg OECD and Business Confidence Index Data as of 732019Heatmap colors based on the indices and time periods shown
Global economyA sluggish first half of 2019 wonrsquot stop the global economy from achieving another year of growth though the pace of the expansion will be slower than the prior year Flagging economic data has prompted economists to lower forecasts and has alerted policy makers to prepare for action in support of growth The Organization for Economic Cooperation and Development (OECD) projects global real GDP to rise by 32 percent which is 01 percent lower than their prior forecast and 04 percent lower than 2018 Trade policy quarrels have significantly impacted manufacturing as new orders have declined due to uncertainty about the timing of tariffs restrictions on goods and companies have contemplated changes to their supply chains Manufacturing activity on a global basis slipped into contraction territory at the end the second quarter of the year according to the JPMorgan Global Manufacturing PMI On a composite basis the JPMorgan Global PMI indicates the global economy is still in expansion mode supported by service activity With capital expenditures and industrial production shaky business consumption has lagged consumer demand which has been supported by solid employment conditions Retail sales in emerging economies have held up well although growth has fallen recently in China Spending growth was strong in most advanced economies and had a firm rebound in the second quarter With policy responses expected to emerge the pace of economic activity should pick up toward year-end as the central banks manage through trade policy wrangling and political developments
0719-0077MS-063020
World Trade Stalls Amid Trade Friction Emerging Economies Are Key Consumers
Global Trade SlowsTrade policy uncertainty has begun to weigh on trade activity Tariff increases that are enacted and sustained will negatively impact economic growth over the medium term although supply chains and manufacturing infrastructure should adjust longer term The health of emerging economies which are key destinations for exports and major sources of growth for corporations in developed economies remain in focus
Sources CPB Netherlands Bureau for Economic Policy Analysis and SVB Asset Management Data as of 6212019
Exports Decline Amid Trade Policy DisputesThe value of exports from advanced economies has fallen since the start of the year contributing to worries that growth will decelerate In the US imports continue to outpace exports leading to a trade deficit that is wider than the prior year
Sources CPB Netherlands Bureau for Economic Policy Analysis US Census Bureau and SVB Asset Management Data as of 6212019
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
Economic data in the first half of the year continued to be mixed The effects of tax cuts continued to fade while trade tensions escalated further dampening the economic outlook As signaled the Fed shifted into dovish gear in an effort to sustain economic growth in light of increased headwinds The first quarter of 2019 showed strong growth with GDP at 31 percent however a significant portion was driven by inventory buildup as companies added to inventory preemptively as trade tensions heightened We expect growth to moderate in Q2 as the economic outlook is clouded by uncertainties regarding trade policies Meanwhile labor remained steady with an average of 170000 jobs per month added in the first half of the year and the unemployment rate close to a 50-year low On the other side of the Fedrsquos dual mandate ndash inflation price pressures have been subdued falling below the Fedrsquos target range of 2 percent Muted inflation pressures appear to be providing fuel for the Fed to cut rates before year-end Looking ahead deteriorating business sentiment amid rising trade tensions combined with muted inflation pressures and increased risk to the economic outlook appear to support the Fedrsquos shift to a more dovish tone and potential rate cuts
Domestic economy
0719-0077MS-063020
First quarter GDP came in strong at 31 percent Growth in Q1 was largely driven by inventory investment and exports while consumption had a notably weak showing Expectations are for growth to moderate as the year progresses now that the benefits of tax reform have faded and global growth is slowing amid ongoing uncertainty over global trade
Sources Bureau of Economic Analysis Congressional Budget Office and SVB Asset Management Data as of 6302019 GDP values shown in legend are percent change vs prior quarter on an annualized basis
Consumption Expect a reboundConsumer activity continued to slow in Q1 increasing only 09 percent vs 25 percent the prior quarter Spending in Q1 was the slowest in a year Meanwhile household balance sheets remain healthy with a stable ratio of debt to disposable income In the latter half of Q2 retail sales picked up reflecting an improvement over earlier in the year which should translate into stronger consumption in Q2 data Finally vehicle sales continue to maintain a healthy level
Consumption Overview
Sources Bloomberg and SVB Asset Management Data as of 722019
Retail and Food Services Sales
80
90
100
110
120
130
140
0
1
2
3
4
5
2011 2012 2013 2014 2015 2016 2017 2018 2019
Perc
ent
Perc
ent
Personal consumption Household debt to disposable income ratio
Employment Remains solidIn the first half of 2019 the employment growth averaged about 170000 jobs per month While this was a deceleration compared to last year job growth is still on solid footing In addition the unemployment rate continues to hover around a 50-year low at 37 percent while the participation rate for prime-age labor force remains steady
Labor Force Participation
Sources US Bureau of Labor Statistics Bloomberg and SVB Asset ManagementData as of 752019
Inflation SubduedThe downward trend in inflation leaves room for the Fed to cut rates before year-end Hourly wages have moderated further alleviating the potential for inflationary pressure Meanwhile oil prices have rebounded from this yearrsquos lows due to geopolitical events affecting supply however falling demand is keeping oil prices at bay
Core PCE
Sources Bloomberg and SVB Asset Management Data as of 722019
Business Outlook Uncertainty loomsEscalating trade tensions are weighing on business confidence and creating a wave of uncertainty causing companies to trim forecasts for 2019 In the last 12 months regional Fed surveys reflect an overall decline in business sentiment
Business Confidence Index
Sources Bloomberg OECD and Business Confidence Index Data as of 732019Heatmap colors based on the indices and time periods shown
Global economyA sluggish first half of 2019 wonrsquot stop the global economy from achieving another year of growth though the pace of the expansion will be slower than the prior year Flagging economic data has prompted economists to lower forecasts and has alerted policy makers to prepare for action in support of growth The Organization for Economic Cooperation and Development (OECD) projects global real GDP to rise by 32 percent which is 01 percent lower than their prior forecast and 04 percent lower than 2018 Trade policy quarrels have significantly impacted manufacturing as new orders have declined due to uncertainty about the timing of tariffs restrictions on goods and companies have contemplated changes to their supply chains Manufacturing activity on a global basis slipped into contraction territory at the end the second quarter of the year according to the JPMorgan Global Manufacturing PMI On a composite basis the JPMorgan Global PMI indicates the global economy is still in expansion mode supported by service activity With capital expenditures and industrial production shaky business consumption has lagged consumer demand which has been supported by solid employment conditions Retail sales in emerging economies have held up well although growth has fallen recently in China Spending growth was strong in most advanced economies and had a firm rebound in the second quarter With policy responses expected to emerge the pace of economic activity should pick up toward year-end as the central banks manage through trade policy wrangling and political developments
0719-0077MS-063020
World Trade Stalls Amid Trade Friction Emerging Economies Are Key Consumers
Global Trade SlowsTrade policy uncertainty has begun to weigh on trade activity Tariff increases that are enacted and sustained will negatively impact economic growth over the medium term although supply chains and manufacturing infrastructure should adjust longer term The health of emerging economies which are key destinations for exports and major sources of growth for corporations in developed economies remain in focus
Sources CPB Netherlands Bureau for Economic Policy Analysis and SVB Asset Management Data as of 6212019
Exports Decline Amid Trade Policy DisputesThe value of exports from advanced economies has fallen since the start of the year contributing to worries that growth will decelerate In the US imports continue to outpace exports leading to a trade deficit that is wider than the prior year
Sources CPB Netherlands Bureau for Economic Policy Analysis US Census Bureau and SVB Asset Management Data as of 6212019
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
Economic data in the first half of the year continued to be mixed The effects of tax cuts continued to fade while trade tensions escalated further dampening the economic outlook As signaled the Fed shifted into dovish gear in an effort to sustain economic growth in light of increased headwinds The first quarter of 2019 showed strong growth with GDP at 31 percent however a significant portion was driven by inventory buildup as companies added to inventory preemptively as trade tensions heightened We expect growth to moderate in Q2 as the economic outlook is clouded by uncertainties regarding trade policies Meanwhile labor remained steady with an average of 170000 jobs per month added in the first half of the year and the unemployment rate close to a 50-year low On the other side of the Fedrsquos dual mandate ndash inflation price pressures have been subdued falling below the Fedrsquos target range of 2 percent Muted inflation pressures appear to be providing fuel for the Fed to cut rates before year-end Looking ahead deteriorating business sentiment amid rising trade tensions combined with muted inflation pressures and increased risk to the economic outlook appear to support the Fedrsquos shift to a more dovish tone and potential rate cuts
Domestic economy
0719-0077MS-063020
First quarter GDP came in strong at 31 percent Growth in Q1 was largely driven by inventory investment and exports while consumption had a notably weak showing Expectations are for growth to moderate as the year progresses now that the benefits of tax reform have faded and global growth is slowing amid ongoing uncertainty over global trade
Sources Bureau of Economic Analysis Congressional Budget Office and SVB Asset Management Data as of 6302019 GDP values shown in legend are percent change vs prior quarter on an annualized basis
Consumption Expect a reboundConsumer activity continued to slow in Q1 increasing only 09 percent vs 25 percent the prior quarter Spending in Q1 was the slowest in a year Meanwhile household balance sheets remain healthy with a stable ratio of debt to disposable income In the latter half of Q2 retail sales picked up reflecting an improvement over earlier in the year which should translate into stronger consumption in Q2 data Finally vehicle sales continue to maintain a healthy level
Consumption Overview
Sources Bloomberg and SVB Asset Management Data as of 722019
Retail and Food Services Sales
80
90
100
110
120
130
140
0
1
2
3
4
5
2011 2012 2013 2014 2015 2016 2017 2018 2019
Perc
ent
Perc
ent
Personal consumption Household debt to disposable income ratio
Employment Remains solidIn the first half of 2019 the employment growth averaged about 170000 jobs per month While this was a deceleration compared to last year job growth is still on solid footing In addition the unemployment rate continues to hover around a 50-year low at 37 percent while the participation rate for prime-age labor force remains steady
Labor Force Participation
Sources US Bureau of Labor Statistics Bloomberg and SVB Asset ManagementData as of 752019
Inflation SubduedThe downward trend in inflation leaves room for the Fed to cut rates before year-end Hourly wages have moderated further alleviating the potential for inflationary pressure Meanwhile oil prices have rebounded from this yearrsquos lows due to geopolitical events affecting supply however falling demand is keeping oil prices at bay
Core PCE
Sources Bloomberg and SVB Asset Management Data as of 722019
Business Outlook Uncertainty loomsEscalating trade tensions are weighing on business confidence and creating a wave of uncertainty causing companies to trim forecasts for 2019 In the last 12 months regional Fed surveys reflect an overall decline in business sentiment
Business Confidence Index
Sources Bloomberg OECD and Business Confidence Index Data as of 732019Heatmap colors based on the indices and time periods shown
Global economyA sluggish first half of 2019 wonrsquot stop the global economy from achieving another year of growth though the pace of the expansion will be slower than the prior year Flagging economic data has prompted economists to lower forecasts and has alerted policy makers to prepare for action in support of growth The Organization for Economic Cooperation and Development (OECD) projects global real GDP to rise by 32 percent which is 01 percent lower than their prior forecast and 04 percent lower than 2018 Trade policy quarrels have significantly impacted manufacturing as new orders have declined due to uncertainty about the timing of tariffs restrictions on goods and companies have contemplated changes to their supply chains Manufacturing activity on a global basis slipped into contraction territory at the end the second quarter of the year according to the JPMorgan Global Manufacturing PMI On a composite basis the JPMorgan Global PMI indicates the global economy is still in expansion mode supported by service activity With capital expenditures and industrial production shaky business consumption has lagged consumer demand which has been supported by solid employment conditions Retail sales in emerging economies have held up well although growth has fallen recently in China Spending growth was strong in most advanced economies and had a firm rebound in the second quarter With policy responses expected to emerge the pace of economic activity should pick up toward year-end as the central banks manage through trade policy wrangling and political developments
0719-0077MS-063020
World Trade Stalls Amid Trade Friction Emerging Economies Are Key Consumers
Global Trade SlowsTrade policy uncertainty has begun to weigh on trade activity Tariff increases that are enacted and sustained will negatively impact economic growth over the medium term although supply chains and manufacturing infrastructure should adjust longer term The health of emerging economies which are key destinations for exports and major sources of growth for corporations in developed economies remain in focus
Sources CPB Netherlands Bureau for Economic Policy Analysis and SVB Asset Management Data as of 6212019
Exports Decline Amid Trade Policy DisputesThe value of exports from advanced economies has fallen since the start of the year contributing to worries that growth will decelerate In the US imports continue to outpace exports leading to a trade deficit that is wider than the prior year
Sources CPB Netherlands Bureau for Economic Policy Analysis US Census Bureau and SVB Asset Management Data as of 6212019
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
0719-0077MS-063020
First quarter GDP came in strong at 31 percent Growth in Q1 was largely driven by inventory investment and exports while consumption had a notably weak showing Expectations are for growth to moderate as the year progresses now that the benefits of tax reform have faded and global growth is slowing amid ongoing uncertainty over global trade
Sources Bureau of Economic Analysis Congressional Budget Office and SVB Asset Management Data as of 6302019 GDP values shown in legend are percent change vs prior quarter on an annualized basis
Consumption Expect a reboundConsumer activity continued to slow in Q1 increasing only 09 percent vs 25 percent the prior quarter Spending in Q1 was the slowest in a year Meanwhile household balance sheets remain healthy with a stable ratio of debt to disposable income In the latter half of Q2 retail sales picked up reflecting an improvement over earlier in the year which should translate into stronger consumption in Q2 data Finally vehicle sales continue to maintain a healthy level
Consumption Overview
Sources Bloomberg and SVB Asset Management Data as of 722019
Retail and Food Services Sales
80
90
100
110
120
130
140
0
1
2
3
4
5
2011 2012 2013 2014 2015 2016 2017 2018 2019
Perc
ent
Perc
ent
Personal consumption Household debt to disposable income ratio
Employment Remains solidIn the first half of 2019 the employment growth averaged about 170000 jobs per month While this was a deceleration compared to last year job growth is still on solid footing In addition the unemployment rate continues to hover around a 50-year low at 37 percent while the participation rate for prime-age labor force remains steady
Labor Force Participation
Sources US Bureau of Labor Statistics Bloomberg and SVB Asset ManagementData as of 752019
Inflation SubduedThe downward trend in inflation leaves room for the Fed to cut rates before year-end Hourly wages have moderated further alleviating the potential for inflationary pressure Meanwhile oil prices have rebounded from this yearrsquos lows due to geopolitical events affecting supply however falling demand is keeping oil prices at bay
Core PCE
Sources Bloomberg and SVB Asset Management Data as of 722019
Business Outlook Uncertainty loomsEscalating trade tensions are weighing on business confidence and creating a wave of uncertainty causing companies to trim forecasts for 2019 In the last 12 months regional Fed surveys reflect an overall decline in business sentiment
Business Confidence Index
Sources Bloomberg OECD and Business Confidence Index Data as of 732019Heatmap colors based on the indices and time periods shown
Global economyA sluggish first half of 2019 wonrsquot stop the global economy from achieving another year of growth though the pace of the expansion will be slower than the prior year Flagging economic data has prompted economists to lower forecasts and has alerted policy makers to prepare for action in support of growth The Organization for Economic Cooperation and Development (OECD) projects global real GDP to rise by 32 percent which is 01 percent lower than their prior forecast and 04 percent lower than 2018 Trade policy quarrels have significantly impacted manufacturing as new orders have declined due to uncertainty about the timing of tariffs restrictions on goods and companies have contemplated changes to their supply chains Manufacturing activity on a global basis slipped into contraction territory at the end the second quarter of the year according to the JPMorgan Global Manufacturing PMI On a composite basis the JPMorgan Global PMI indicates the global economy is still in expansion mode supported by service activity With capital expenditures and industrial production shaky business consumption has lagged consumer demand which has been supported by solid employment conditions Retail sales in emerging economies have held up well although growth has fallen recently in China Spending growth was strong in most advanced economies and had a firm rebound in the second quarter With policy responses expected to emerge the pace of economic activity should pick up toward year-end as the central banks manage through trade policy wrangling and political developments
0719-0077MS-063020
World Trade Stalls Amid Trade Friction Emerging Economies Are Key Consumers
Global Trade SlowsTrade policy uncertainty has begun to weigh on trade activity Tariff increases that are enacted and sustained will negatively impact economic growth over the medium term although supply chains and manufacturing infrastructure should adjust longer term The health of emerging economies which are key destinations for exports and major sources of growth for corporations in developed economies remain in focus
Sources CPB Netherlands Bureau for Economic Policy Analysis and SVB Asset Management Data as of 6212019
Exports Decline Amid Trade Policy DisputesThe value of exports from advanced economies has fallen since the start of the year contributing to worries that growth will decelerate In the US imports continue to outpace exports leading to a trade deficit that is wider than the prior year
Sources CPB Netherlands Bureau for Economic Policy Analysis US Census Bureau and SVB Asset Management Data as of 6212019
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
Consumption Expect a reboundConsumer activity continued to slow in Q1 increasing only 09 percent vs 25 percent the prior quarter Spending in Q1 was the slowest in a year Meanwhile household balance sheets remain healthy with a stable ratio of debt to disposable income In the latter half of Q2 retail sales picked up reflecting an improvement over earlier in the year which should translate into stronger consumption in Q2 data Finally vehicle sales continue to maintain a healthy level
Consumption Overview
Sources Bloomberg and SVB Asset Management Data as of 722019
Retail and Food Services Sales
80
90
100
110
120
130
140
0
1
2
3
4
5
2011 2012 2013 2014 2015 2016 2017 2018 2019
Perc
ent
Perc
ent
Personal consumption Household debt to disposable income ratio
Employment Remains solidIn the first half of 2019 the employment growth averaged about 170000 jobs per month While this was a deceleration compared to last year job growth is still on solid footing In addition the unemployment rate continues to hover around a 50-year low at 37 percent while the participation rate for prime-age labor force remains steady
Labor Force Participation
Sources US Bureau of Labor Statistics Bloomberg and SVB Asset ManagementData as of 752019
Inflation SubduedThe downward trend in inflation leaves room for the Fed to cut rates before year-end Hourly wages have moderated further alleviating the potential for inflationary pressure Meanwhile oil prices have rebounded from this yearrsquos lows due to geopolitical events affecting supply however falling demand is keeping oil prices at bay
Core PCE
Sources Bloomberg and SVB Asset Management Data as of 722019
Business Outlook Uncertainty loomsEscalating trade tensions are weighing on business confidence and creating a wave of uncertainty causing companies to trim forecasts for 2019 In the last 12 months regional Fed surveys reflect an overall decline in business sentiment
Business Confidence Index
Sources Bloomberg OECD and Business Confidence Index Data as of 732019Heatmap colors based on the indices and time periods shown
Global economyA sluggish first half of 2019 wonrsquot stop the global economy from achieving another year of growth though the pace of the expansion will be slower than the prior year Flagging economic data has prompted economists to lower forecasts and has alerted policy makers to prepare for action in support of growth The Organization for Economic Cooperation and Development (OECD) projects global real GDP to rise by 32 percent which is 01 percent lower than their prior forecast and 04 percent lower than 2018 Trade policy quarrels have significantly impacted manufacturing as new orders have declined due to uncertainty about the timing of tariffs restrictions on goods and companies have contemplated changes to their supply chains Manufacturing activity on a global basis slipped into contraction territory at the end the second quarter of the year according to the JPMorgan Global Manufacturing PMI On a composite basis the JPMorgan Global PMI indicates the global economy is still in expansion mode supported by service activity With capital expenditures and industrial production shaky business consumption has lagged consumer demand which has been supported by solid employment conditions Retail sales in emerging economies have held up well although growth has fallen recently in China Spending growth was strong in most advanced economies and had a firm rebound in the second quarter With policy responses expected to emerge the pace of economic activity should pick up toward year-end as the central banks manage through trade policy wrangling and political developments
0719-0077MS-063020
World Trade Stalls Amid Trade Friction Emerging Economies Are Key Consumers
Global Trade SlowsTrade policy uncertainty has begun to weigh on trade activity Tariff increases that are enacted and sustained will negatively impact economic growth over the medium term although supply chains and manufacturing infrastructure should adjust longer term The health of emerging economies which are key destinations for exports and major sources of growth for corporations in developed economies remain in focus
Sources CPB Netherlands Bureau for Economic Policy Analysis and SVB Asset Management Data as of 6212019
Exports Decline Amid Trade Policy DisputesThe value of exports from advanced economies has fallen since the start of the year contributing to worries that growth will decelerate In the US imports continue to outpace exports leading to a trade deficit that is wider than the prior year
Sources CPB Netherlands Bureau for Economic Policy Analysis US Census Bureau and SVB Asset Management Data as of 6212019
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
Employment Remains solidIn the first half of 2019 the employment growth averaged about 170000 jobs per month While this was a deceleration compared to last year job growth is still on solid footing In addition the unemployment rate continues to hover around a 50-year low at 37 percent while the participation rate for prime-age labor force remains steady
Labor Force Participation
Sources US Bureau of Labor Statistics Bloomberg and SVB Asset ManagementData as of 752019
Inflation SubduedThe downward trend in inflation leaves room for the Fed to cut rates before year-end Hourly wages have moderated further alleviating the potential for inflationary pressure Meanwhile oil prices have rebounded from this yearrsquos lows due to geopolitical events affecting supply however falling demand is keeping oil prices at bay
Core PCE
Sources Bloomberg and SVB Asset Management Data as of 722019
Business Outlook Uncertainty loomsEscalating trade tensions are weighing on business confidence and creating a wave of uncertainty causing companies to trim forecasts for 2019 In the last 12 months regional Fed surveys reflect an overall decline in business sentiment
Business Confidence Index
Sources Bloomberg OECD and Business Confidence Index Data as of 732019Heatmap colors based on the indices and time periods shown
Global economyA sluggish first half of 2019 wonrsquot stop the global economy from achieving another year of growth though the pace of the expansion will be slower than the prior year Flagging economic data has prompted economists to lower forecasts and has alerted policy makers to prepare for action in support of growth The Organization for Economic Cooperation and Development (OECD) projects global real GDP to rise by 32 percent which is 01 percent lower than their prior forecast and 04 percent lower than 2018 Trade policy quarrels have significantly impacted manufacturing as new orders have declined due to uncertainty about the timing of tariffs restrictions on goods and companies have contemplated changes to their supply chains Manufacturing activity on a global basis slipped into contraction territory at the end the second quarter of the year according to the JPMorgan Global Manufacturing PMI On a composite basis the JPMorgan Global PMI indicates the global economy is still in expansion mode supported by service activity With capital expenditures and industrial production shaky business consumption has lagged consumer demand which has been supported by solid employment conditions Retail sales in emerging economies have held up well although growth has fallen recently in China Spending growth was strong in most advanced economies and had a firm rebound in the second quarter With policy responses expected to emerge the pace of economic activity should pick up toward year-end as the central banks manage through trade policy wrangling and political developments
0719-0077MS-063020
World Trade Stalls Amid Trade Friction Emerging Economies Are Key Consumers
Global Trade SlowsTrade policy uncertainty has begun to weigh on trade activity Tariff increases that are enacted and sustained will negatively impact economic growth over the medium term although supply chains and manufacturing infrastructure should adjust longer term The health of emerging economies which are key destinations for exports and major sources of growth for corporations in developed economies remain in focus
Sources CPB Netherlands Bureau for Economic Policy Analysis and SVB Asset Management Data as of 6212019
Exports Decline Amid Trade Policy DisputesThe value of exports from advanced economies has fallen since the start of the year contributing to worries that growth will decelerate In the US imports continue to outpace exports leading to a trade deficit that is wider than the prior year
Sources CPB Netherlands Bureau for Economic Policy Analysis US Census Bureau and SVB Asset Management Data as of 6212019
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
Inflation SubduedThe downward trend in inflation leaves room for the Fed to cut rates before year-end Hourly wages have moderated further alleviating the potential for inflationary pressure Meanwhile oil prices have rebounded from this yearrsquos lows due to geopolitical events affecting supply however falling demand is keeping oil prices at bay
Core PCE
Sources Bloomberg and SVB Asset Management Data as of 722019
Business Outlook Uncertainty loomsEscalating trade tensions are weighing on business confidence and creating a wave of uncertainty causing companies to trim forecasts for 2019 In the last 12 months regional Fed surveys reflect an overall decline in business sentiment
Business Confidence Index
Sources Bloomberg OECD and Business Confidence Index Data as of 732019Heatmap colors based on the indices and time periods shown
Global economyA sluggish first half of 2019 wonrsquot stop the global economy from achieving another year of growth though the pace of the expansion will be slower than the prior year Flagging economic data has prompted economists to lower forecasts and has alerted policy makers to prepare for action in support of growth The Organization for Economic Cooperation and Development (OECD) projects global real GDP to rise by 32 percent which is 01 percent lower than their prior forecast and 04 percent lower than 2018 Trade policy quarrels have significantly impacted manufacturing as new orders have declined due to uncertainty about the timing of tariffs restrictions on goods and companies have contemplated changes to their supply chains Manufacturing activity on a global basis slipped into contraction territory at the end the second quarter of the year according to the JPMorgan Global Manufacturing PMI On a composite basis the JPMorgan Global PMI indicates the global economy is still in expansion mode supported by service activity With capital expenditures and industrial production shaky business consumption has lagged consumer demand which has been supported by solid employment conditions Retail sales in emerging economies have held up well although growth has fallen recently in China Spending growth was strong in most advanced economies and had a firm rebound in the second quarter With policy responses expected to emerge the pace of economic activity should pick up toward year-end as the central banks manage through trade policy wrangling and political developments
0719-0077MS-063020
World Trade Stalls Amid Trade Friction Emerging Economies Are Key Consumers
Global Trade SlowsTrade policy uncertainty has begun to weigh on trade activity Tariff increases that are enacted and sustained will negatively impact economic growth over the medium term although supply chains and manufacturing infrastructure should adjust longer term The health of emerging economies which are key destinations for exports and major sources of growth for corporations in developed economies remain in focus
Sources CPB Netherlands Bureau for Economic Policy Analysis and SVB Asset Management Data as of 6212019
Exports Decline Amid Trade Policy DisputesThe value of exports from advanced economies has fallen since the start of the year contributing to worries that growth will decelerate In the US imports continue to outpace exports leading to a trade deficit that is wider than the prior year
Sources CPB Netherlands Bureau for Economic Policy Analysis US Census Bureau and SVB Asset Management Data as of 6212019
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
Business Outlook Uncertainty loomsEscalating trade tensions are weighing on business confidence and creating a wave of uncertainty causing companies to trim forecasts for 2019 In the last 12 months regional Fed surveys reflect an overall decline in business sentiment
Business Confidence Index
Sources Bloomberg OECD and Business Confidence Index Data as of 732019Heatmap colors based on the indices and time periods shown
Global economyA sluggish first half of 2019 wonrsquot stop the global economy from achieving another year of growth though the pace of the expansion will be slower than the prior year Flagging economic data has prompted economists to lower forecasts and has alerted policy makers to prepare for action in support of growth The Organization for Economic Cooperation and Development (OECD) projects global real GDP to rise by 32 percent which is 01 percent lower than their prior forecast and 04 percent lower than 2018 Trade policy quarrels have significantly impacted manufacturing as new orders have declined due to uncertainty about the timing of tariffs restrictions on goods and companies have contemplated changes to their supply chains Manufacturing activity on a global basis slipped into contraction territory at the end the second quarter of the year according to the JPMorgan Global Manufacturing PMI On a composite basis the JPMorgan Global PMI indicates the global economy is still in expansion mode supported by service activity With capital expenditures and industrial production shaky business consumption has lagged consumer demand which has been supported by solid employment conditions Retail sales in emerging economies have held up well although growth has fallen recently in China Spending growth was strong in most advanced economies and had a firm rebound in the second quarter With policy responses expected to emerge the pace of economic activity should pick up toward year-end as the central banks manage through trade policy wrangling and political developments
0719-0077MS-063020
World Trade Stalls Amid Trade Friction Emerging Economies Are Key Consumers
Global Trade SlowsTrade policy uncertainty has begun to weigh on trade activity Tariff increases that are enacted and sustained will negatively impact economic growth over the medium term although supply chains and manufacturing infrastructure should adjust longer term The health of emerging economies which are key destinations for exports and major sources of growth for corporations in developed economies remain in focus
Sources CPB Netherlands Bureau for Economic Policy Analysis and SVB Asset Management Data as of 6212019
Exports Decline Amid Trade Policy DisputesThe value of exports from advanced economies has fallen since the start of the year contributing to worries that growth will decelerate In the US imports continue to outpace exports leading to a trade deficit that is wider than the prior year
Sources CPB Netherlands Bureau for Economic Policy Analysis US Census Bureau and SVB Asset Management Data as of 6212019
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
Global economyA sluggish first half of 2019 wonrsquot stop the global economy from achieving another year of growth though the pace of the expansion will be slower than the prior year Flagging economic data has prompted economists to lower forecasts and has alerted policy makers to prepare for action in support of growth The Organization for Economic Cooperation and Development (OECD) projects global real GDP to rise by 32 percent which is 01 percent lower than their prior forecast and 04 percent lower than 2018 Trade policy quarrels have significantly impacted manufacturing as new orders have declined due to uncertainty about the timing of tariffs restrictions on goods and companies have contemplated changes to their supply chains Manufacturing activity on a global basis slipped into contraction territory at the end the second quarter of the year according to the JPMorgan Global Manufacturing PMI On a composite basis the JPMorgan Global PMI indicates the global economy is still in expansion mode supported by service activity With capital expenditures and industrial production shaky business consumption has lagged consumer demand which has been supported by solid employment conditions Retail sales in emerging economies have held up well although growth has fallen recently in China Spending growth was strong in most advanced economies and had a firm rebound in the second quarter With policy responses expected to emerge the pace of economic activity should pick up toward year-end as the central banks manage through trade policy wrangling and political developments
0719-0077MS-063020
World Trade Stalls Amid Trade Friction Emerging Economies Are Key Consumers
Global Trade SlowsTrade policy uncertainty has begun to weigh on trade activity Tariff increases that are enacted and sustained will negatively impact economic growth over the medium term although supply chains and manufacturing infrastructure should adjust longer term The health of emerging economies which are key destinations for exports and major sources of growth for corporations in developed economies remain in focus
Sources CPB Netherlands Bureau for Economic Policy Analysis and SVB Asset Management Data as of 6212019
Exports Decline Amid Trade Policy DisputesThe value of exports from advanced economies has fallen since the start of the year contributing to worries that growth will decelerate In the US imports continue to outpace exports leading to a trade deficit that is wider than the prior year
Sources CPB Netherlands Bureau for Economic Policy Analysis US Census Bureau and SVB Asset Management Data as of 6212019
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
Global economyA sluggish first half of 2019 wonrsquot stop the global economy from achieving another year of growth though the pace of the expansion will be slower than the prior year Flagging economic data has prompted economists to lower forecasts and has alerted policy makers to prepare for action in support of growth The Organization for Economic Cooperation and Development (OECD) projects global real GDP to rise by 32 percent which is 01 percent lower than their prior forecast and 04 percent lower than 2018 Trade policy quarrels have significantly impacted manufacturing as new orders have declined due to uncertainty about the timing of tariffs restrictions on goods and companies have contemplated changes to their supply chains Manufacturing activity on a global basis slipped into contraction territory at the end the second quarter of the year according to the JPMorgan Global Manufacturing PMI On a composite basis the JPMorgan Global PMI indicates the global economy is still in expansion mode supported by service activity With capital expenditures and industrial production shaky business consumption has lagged consumer demand which has been supported by solid employment conditions Retail sales in emerging economies have held up well although growth has fallen recently in China Spending growth was strong in most advanced economies and had a firm rebound in the second quarter With policy responses expected to emerge the pace of economic activity should pick up toward year-end as the central banks manage through trade policy wrangling and political developments
0719-0077MS-063020
World Trade Stalls Amid Trade Friction Emerging Economies Are Key Consumers
Global Trade SlowsTrade policy uncertainty has begun to weigh on trade activity Tariff increases that are enacted and sustained will negatively impact economic growth over the medium term although supply chains and manufacturing infrastructure should adjust longer term The health of emerging economies which are key destinations for exports and major sources of growth for corporations in developed economies remain in focus
Sources CPB Netherlands Bureau for Economic Policy Analysis and SVB Asset Management Data as of 6212019
Exports Decline Amid Trade Policy DisputesThe value of exports from advanced economies has fallen since the start of the year contributing to worries that growth will decelerate In the US imports continue to outpace exports leading to a trade deficit that is wider than the prior year
Sources CPB Netherlands Bureau for Economic Policy Analysis US Census Bureau and SVB Asset Management Data as of 6212019
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
0719-0077MS-063020
World Trade Stalls Amid Trade Friction Emerging Economies Are Key Consumers
Global Trade SlowsTrade policy uncertainty has begun to weigh on trade activity Tariff increases that are enacted and sustained will negatively impact economic growth over the medium term although supply chains and manufacturing infrastructure should adjust longer term The health of emerging economies which are key destinations for exports and major sources of growth for corporations in developed economies remain in focus
Sources CPB Netherlands Bureau for Economic Policy Analysis and SVB Asset Management Data as of 6212019
Exports Decline Amid Trade Policy DisputesThe value of exports from advanced economies has fallen since the start of the year contributing to worries that growth will decelerate In the US imports continue to outpace exports leading to a trade deficit that is wider than the prior year
Sources CPB Netherlands Bureau for Economic Policy Analysis US Census Bureau and SVB Asset Management Data as of 6212019
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
0719-0077MS-063020
Decline in Exports US Trade Deficit Is Still a Deficit
Exports Decline Amid Trade Policy DisputesThe value of exports from advanced economies has fallen since the start of the year contributing to worries that growth will decelerate In the US imports continue to outpace exports leading to a trade deficit that is wider than the prior year
Sources CPB Netherlands Bureau for Economic Policy Analysis US Census Bureau and SVB Asset Management Data as of 6212019
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
0719-0077MS-063020
Recent comments from the Federal Reserve point toward a pending cut in the benchmark rate The expectation is for at least a quarter-percent reduction but many market participants anticipate there could be more for the year The FOMC is once again at an inflection point in moderating a solid economy with strong jobs data while frustrated that inflation remains tepid The committee stated that trade headlines and softer global growth are weighing more on the US economy Many opined that uncertainties and downside risks have increased strengthening the case for a cut
Accordingly the US dollar (USD) has softened across the board especially against the G10 currencies One of the stronger performers over Q2 has been the Canadian dollar (CAD) The Bank of Canada has reiterated its policy to hold rates steady at 175 percent in support of the current economic expansion The currency is up 41 percent year to date against the greenback
USD to End Its Gradual Rise CAD Helped By 40-Year Low in Unemployment
Sources Intercontinental Exchange Bloomberg and Silicon Valley Bank Data as of 712019
93
94
95
96
97
98
99
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
DXY
Inde
x
126
128
130
132
134
136
138
Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19
USD
CAD
(pri
ce o
f 1 U
SD in
CAD
)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
0719-0077MS-063020
The pound continues to remain under pressure and has fallen to a two-year low against the dollar Investors have grown more concerned with UK economic prospects and the likelihood of a no-deal Brexit In addition political headlines regarding a change in leadership have only fueled more uneasiness about the currency
Correspondingly the pound is trading near its low for the year After a nice run during Q1 the currency has precipitously fallen from about 132 to 125 over Q2 This comes as the Bank of England announced that it was in no rush to raise rates and extended its neutral stance in light of the ongoing Brexit negotiations Until more substantive talks materialize itrsquos likely that investors will remain more risk-averse toward the currency
Brexit Puts Interest Rates on HoldGBP Taking a Hit Amid Brexit Turmoil
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
Dovish policy reverberated through global central banks in the second quarter of 2019 in what was a continued reversal of 2018rsquos more hawkish policy trajectory Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September 2018 and for a median of one rate cut in 2020 Further at their June 2019 meeting eight of 17 committee members forecast some sort of rate reduction in 2019 could be appropriate The dovish pivot has been attributed to uncertain outcomes of global ldquocrosscurrentsrdquo sub-target inflation and continued trade tensions Market participants continue to speculate that the Fedrsquos next policy move may in fact need to be a rate cut
Synchronized global growth and inflation outlooks continued to slow in the second quarter At its June 2019 meeting reflecting this reality the European Central Bank (ECB) announced its expectation that policy rates will at a minimum be on hold through at least the first half of 2020 contrary to previous guidance for the end of 2019 At the same time additional stimulus in the form of refinancing operations was clarified in an attempt to stimulate the economy No changes were made to reinvestments of the ECBrsquos balance sheet
Uncertainties still persist such as the ultimate resolution to the Sino-American trade war Britainrsquos turbulent and prolonged exit from the European Union the impact of the recent Chinese fiscal stimulus in addition to how the Fedrsquos pivot will affect the trajectory of the US economy For now the Fed seems to have signaled its willingness to provide additional accommodation to the economy if the data warrants additional stimulus
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
Market expectations for a more accommodative monetary policy have caused a dip in front-end fixed income yields compared to 2018 Market participants are pricing in multiple interest rate cuts by year-end and the Fed may follow suit
Sources Bloomberg and SVB Asset Management Data as of 722019
3Q18 The FOMC raised rates for the third time in 2018 and 12 of 16 committee members projected they would raise rates in December 2018 as well Median projections for 2019 were unchanged at three rate hikes
4Q18 The FOMC raised the federal funds rate for the fourth and final time in 2018 as the committee revised downward 2019 rate hikes to a median of two One- and two-year Treasury yields inverted as future hikes got priced out by market participants
1Q19 The FOMC left rates unchanged at their March 2019 meeting while communicating a shallower median projection for zero rate hikes in 2019 Additionally a plan was formalized to end the balance sheet runoff beginning in May Markets began to speculate and position for potential rate cuts in the later part of 2019 and early 2020
2Q19 The FOMC left rates unchanged at their June 2019 meeting while communicating future policy decisions may be ldquoappropriate to sustain the expansion of the economyrdquo Eight of the 17 committee membersrsquo dot plot projections forecasted some further accommodation would be necessary in 2019 as global trade concerns remained and inflation softness persisted
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
Committee membersrsquo projections for the path of the federal funds rate
Sources Bloomberg and Federal Reserve Data as of 722019 Median rate references forecast rate at the end of each period
Recent projections from the Federal Reserve imply consensus among the committee for no additional rate hikes in 2019 down from a projection of two in December and three in September of 2018 The median projection highlights a potential rate cut in 2020 with a number of committee members believing more accommodation could be appropriate as early as 2019
Current and historical Fed projections for the federal funds rate (median rate)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
0719-0077MS-063020
Central Bank Economic Projections
SVB Asset Management | Quarterly Economic Report Q3 2019 21Sources Federal Reserve European Central Bank National Peoplersquos Congress of China Bank of Japan and Bank of England Data as of 722019 Forecasts are not available for all periods
Economic Projections 2019 2020 2021
United States
Change in real GDP 21 20 18
Core PCE inflation 18 19 20
Unemployment rate 36 37 38
United Kingdom
Change in real GDP 15 16 21
CPI inflation 16 20 21
Unemployment rate 38 38 36
Eurozone
Change in real GDP 12 14 14
CPI inflation 13 14 16
Unemployment rate 77 75 73
China
Change in real GDP NA NA NA
CPI inflation NA NA NA
Unemployment rate NA NA NA
Japan
Change in real GDP 08 09 12
Core CPI inflation 09 13 16
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
0719-0077MS-063020
Central Banks Poised to act
Analysis
BOJ reaffirmed current policy in June with its commitment to a low interest rate until at least Q1 2020 Inflation below target and October tax hike skew towards easing
PBOC cut RRR 100 bps total in January Has tepidly been easing with larger lending programs for small- to medium-sized banks and open market liquidity injections
ECB extended its pledge to maintain interest rates into 2020 in response to trade policy risk Open to restarting QE or cutting rates as it cut growth forecasts
Fed now considering a rate cut this year in response to weakening economic data Cut IOER by 5 bps in June due to funding pressures
BOE says it is biased toward hiking rates contingent on a favorable withdrawal from the EU though a no-deal exit and weakening data will provoke the BOE to reconsider
facility 025bull Deposit facility -04bull QE ended maintain
balance sheet
bull Fed funds target range 225 to 25
bull Interest on excessreserves 235
bull Balance sheet reduction program to end in September
bull Bank rate 075bull QE purchases ended
no change to holdingspound435B giltspound10B corporate bonds
Most major economies remain in growth mode but economic data for the first half of the year indicates a decelerating pace as weak corporate demand trade policy negotiations and political developments all weighed on activity Central banks are now on guard to take preemptive action to prevent a sustained downturn
Sources Bank of Japan Peoplersquos Bank of China European Central Bank Bank of England Federal Reserve Bank and Bloomberg Data as of 6302019
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
US fixed income rallied in Q2 as the Fed indicated a greater likelihood of a rate cut this year The ldquorisk-on traderdquo was in full effect in Q2 driven by a seemingly accommodative Fed and a temporary impasse in the US-China trade deal Both US investment-grade (IG) corporate and government bonds delivered higher positive returns relative to other assets classes in the aggregate
Short-duration fixed income performance trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short ABS outperformed in Q2 and remains a nice defensive high-quality option due to its relatively stable fundamentals
Despite mixed economic data weighing on business confidence corporate fundamentals remained broadly stable The US IG corporate debt pile is manageable as leverage continued to stay at an adequate level On the consumer side credit card charge-offs edged up from their all-time low but overall credit quality remained solid reflecting steady employment and wage growth data
Markets and performance
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
0719-0077MS-063020
Broad Market Performance
25
All returns above are on a total return basis YTD 2019 returns are on an aggregate basis up to 6282019 US Aggregate refers to Bloomberg Barclays Aggregate Bond Index US High Yield refers to Bloomberg Barclays US High Yield Index Gold refers to SampP GSCI Gold Spot Crude Oil refers to Spot West Texas Intermediate Crude Oil Wilshire refers to Wilshire 5000 Total Market Index REIT refers to MSCI US REIT Index SampP 500 refers to SampP 500 Index
Asse
t cla
ss re
turn
s
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Thomson Reuters and Bloomberg Barclays indicesPast index performance is no guarantee of future results
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017 YTD
WTI 4082
REIT 3418
WTI 5768
US Treasury 667
Crude Oil 7800
Gold 2967
Gold 1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
Gold 1836
Gold 2295
Gold 3135
Gold 553
Wilshire 2829
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
Wilshire 1340
Wilshire 2100
Wilshire 638
SampP 500 1579
US Treasury 731
FI Credit 030
SampP 500 2646
Wilshire 1718
REIT 748
SampP 500 1600
Crude Oil 732
Wilshire 1270
FI Credit 085
SampP 500 1200
Gold 1370
SampP 500 491
Wilshire 1578
FI Credit 596
SampP 500 -3700
REIT 2627
Crude Oil 1510
SampP 500 211
Gold 696
FI Credit 145
FI Credit 112
Wilshire 070
Gold 860
Crude Oil 1250
FI Credit 189
FI Credit 466
Wilshire 561
Wilshire -3723
Gold 2396
SampP 500 1506
FI Credit 175
FI Credit 369
REIT 126
US Treasury 063
US Treasury 056
REIT 710
REIT 370
US Treasury 162
US Treasury 393
SampP 500 549
REIT -3905
FI Credit 1159
FI Credit 415
US Treasury 155
US Treasury 043
US Treasury 036
Gold -151
Gold -1050
FI Credit 238
FI Credit 191
WTI -034
REIT -1784
Crude Oil -5352
US Treasury 080
US Treasury 240
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Treasury 089
US Treasury 042
SampP GSCI Gold Spot
Fordgeneral motors DG
Crude Oil - WTI Spot
CDO downgrades by SampP
2017
Wilshire 5000 Total Market
SampP 500
2180
MSCI US REITS
Wilshire
2100
SampP 500
Gold
1370
1-3 Year US Treasury
Crude Oil
1250
1-3 Year US Credit
REIT
370
FI Credit
191
US Treasury
042
SampP GSCI Gold Spot
1370
Denotes price return
Crude Oil - WTI Spot
1250
as of 62916
Wilshire 5000 Total Market
2100
MSCI US REITS
370
SampP 500
2180
For 1-3yr UST Total Return Use G1O2 YTD TR (ML 1-3yr US Treasury Index) - Flexible Returns in IND
For 1-3yr US Credit Total Return Use C1A0 YTD TR (ML 1-3yr US Corporate Bond Index) - Flexible Returns in IND
If using Barclays Live
For 1-3yr UST Total Return
Click Indices -gt Agg Bond Indices -gt Treasuries -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
For 1-3yr US Credit Total Return
Click Indices -gt Agg Bond Indices -gt Credit -gt 1-3yr -gt Time Series -gt Quarterly Frequency -gt Select Date Range -gt Select Excess amp Periodic Returns -gt Go
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2018 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
US Aggregate 001
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield 208
US High Yield 208
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
Gold-210
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
SampP 500 -440
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Wilshire -530
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
REIT -580
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
Crude Oil -2530
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2018
Wilshire 5000 Total Market
US Aggregate
001
MSCI US REITS
US High Yield
-208
SampP 500
Gold
-210
1-3 Year US Treasury
SampP 500
-440
1-3 Year US Credit
Wilshire
-530
REIT
-580
Crude Oil
-2530
SampP GSCI Gold Spot
-210
Denotes price return
Crude Oil - WTI Spot
-2530
as of 62916
Wilshire 5000 Total Market
-530
MSCI US REITS
-580
SampP 500
-440
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019 YTD
2019 YTD
Gold 553
Crude Oil 7800
Gold2967
Gold1023
REIT 1647
Wilshire 3306
REIT 2824
SampP 500 140
Crude Oil 4480
SampP 500 2180
US Aggregate 001
Crude Oil 2890
Crude Oil 2890
US Aggregate 524
US High Yield 5821
REIT2697
Crude Oil 815
Wilshire 1605
SampP 500 3239
SampP 500 1369
REIT 130
US High Yield 1713
Wilshire 2100
US High Yield -208
Wilshire 1870
Wilshire 1870
US High Yield -2616
Wilshire 2829
Wilshire 1718
US Aggregate 784
SampP 500 1600
US High Yield 744
Wilshire 1270
Wilshire 070
Wilshire 1340
Gold 1370
Gold-210
SampP 500 1850
SampP 500 1850
SampP 500 -3700
SampP 500 2646
US High Yield 1512
REIT 748
US High Yield 1581
Crude Oil 732
US Aggregate 597
US Aggregate 055
SampP 500 1200
Crude Oil 1250
SampP 500 -440
REIT 1710
REIT 1710
Wilshire -3723
REIT 2627
Crude Oil 1510
US High Yield 498
Gold 696
REIT 126
US High Yield 245
US High Yield -447
Gold 860
US High Yield 750
Wilshire -530
Gold1030
Gold1030
REIT -3905
Gold 2396
SampP 500 1506
SampP 500 211
US Aggregate 421
US Aggregate -202
Gold -151
Gold -1050
REIT 710
REIT 370
REIT -580
US High Yield994
US High Yield994
Crude Oil -5352
US Aggregate 593
US Aggregate 654
Wilshire 098
Crude Oil -708
Gold -2826
Crude Oil -4576
Crude Oil -3050
US Aggregate 265
US Aggregate 354
Crude Oil -2530
US Aggregate611
US Aggregate611
SampP GSCI Gold Spot
Crude Oil - WTI Spot
2019
Wilshire 5000 Total Market
Crude Oil
2890
MSCI US REITS
Wilshire
1870
SampP 500
SampP 500
1850
1-3 Year US Treasury
REIT
1710
1-3 Year US Credit
Gold
1030
US High Yield
994
US Aggregate
611
SampP GSCI Gold Spot
Gold
Crude Oil - WTI Spot
Crude Oil
Wilshire 5000 Total Market
Wilshire
MSCI US REITS
REIT
SampP 500
SampP 500
Data from Barclays Live
For US Aggregate Total Return
Click Indices -gt US Aggregate -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
For US High Yield Total Return
Click Indices -gt US High Yield -gt Select Qtr End Date -gt Select Excess amp Periodic Returns -gt Select YTD Total Return (3rd column)
0719-0077MS-063020
Fixed Income Returns
26
Investment-grade corporate bonds delivered the strongest returns in Q2 followed by US Treasuries and agency bonds US mortgage-backed securities (MBS) lagged as lower rates could spur refinancing thus increasing prepayment risks Short-duration assets trailed its long-end counterparts as investors increased portfolio duration in anticipation of lower interest rates Short asset-backed securities (ABS) outperformed in Q2 as the fundamentals remain supportive to mitigate against broad market swings
SVB Asset Management | Quarterly Economic Report Q3 2019Sources Bloomberg Barclays indices Data as of 6282019 Heatmap colors based on periodic return percentage for time period shown Past performance is not a guarantee of future results
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
Current Duration
Current Yield
Periodic Total Return
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
613
255
-118
005
038
119
067
-384
-028
US Agencies
389
256
-053
006
082
093
113
-210
025
Corporates
750
377
-232
117
134
254
122
-283
141
US MBS
505
330
-119
015
096
087
047
-197
060
US ABS
210
280
-039
-001
042
060
054
-070
020
US CMBS
538
329
-132
035
079
131
086
-303
059
Current Duration
Current Yield
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
194
229
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
177
234
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
300
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
227
276
-048
-008
041
067
056
-104
015
AAA-Auto ABS
180
274
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Periodic Total Return
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate
US Treasuries
610
271
010
-118
005
038
119
067
-384
-028
US Agencies
382
278
000
-053
006
082
093
113
-210
025
Corporates
726
402
-098
-232
117
134
254
122
-283
141
US MBS
510
341
024
-119
015
096
087
047
-197
060
US ABS
211
301
042
-039
-001
042
060
054
-070
020
US CMBS
531
348
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
253
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
172
258
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
196
320
047
-038
-004
059
059
069
-018
032
AAA-Credit Card ABS
222
297
036
-048
-008
041
067
056
-104
015
AAA-Auto ABS
185
304
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield
Non-annualized periodic total return (percent)
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Aggregate Index
US Treasuries
599
295
-059
010
-118
005
038
119
067
-384
-028
US Agencies
392
302
-001
000
-053
006
082
093
113
-210
025
Corporates
724
407
097
-098
-232
117
134
254
122
-283
141
US MBS
528
359
-012
024
-119
015
096
087
047
-197
060
US ABS
216
319
049
042
-039
-001
042
060
054
-070
020
US CMBS
528
358
046
-006
-132
035
079
131
086
-303
059
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
193
281
019
021
-016
-028
024
019
027
-046
-011
1-3 yr US Agencies
176
284
031
025
-004
-021
027
028
035
-039
000
1-3 yr Corporates
193
331
070
047
-038
-004
059
059
069
-018
032
AAA Credit Card ABS
234
314
045
036
-048
-008
041
067
056
-104
015
AAA Auto ABS
183
315
053
043
-025
-002
037
046
041
-031
015
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current duration
Current yield ()
Non-annualized periodic total return (percent)
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2018
2017
US Aggregate Index
US Treasuries
610
261
257
-059
010
-118
005
038
119
067
-384
-028
090
229
US Agencies
401
276
190
-001
000
-053
006
082
093
113
-210
025
136
294
Corporates
710
421
-018
097
-098
-232
117
134
254
122
-283
141
(251)
627
US MBS
473
339
208
-012
024
-119
015
096
087
047
-197
060
101
245
US ABS
215
305
125
049
042
-039
-001
042
060
054
-070
020
177
155
US CMBS
530
344
172
046
-006
-132
035
079
131
086
-303
059
080
331
Q118
Q417
Q317
Q217
Q117
Q416
Q316
US Short Duration
1-3 yr US Treasuries
192
252
131
019
021
-016
-028
024
019
027
-046
-011
155
042
1-3 yr US Agencies
176
259
125
031
025
-004
-021
027
028
035
-039
000
177
069
1-3 yr Corporates
185
340
078
070
047
-038
-004
059
059
069
-018
032
157
183
lt1 yr Corporates
048
320
060
070
063
034
031
042
039
044
227
156
AAA Credit Card ABS
231
300
134
045
036
-048
-008
041
067
056
-104
015
167
156
AAA Auto ABS
184
303
105
053
043
-025
-002
037
046
041
-031
015
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
For Q4
YTD 2019
2018
2017
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
621
238
211
090
229
211
257
-059
010
-118
005
038
119
067
-384
-028
211
090
229
US Agencies
407
251
181
136
294
181
190
-001
000
-053
006
082
093
113
-210
025
181
136
294
Corporates
742
364
514
-251
627
514
-018
097
-098
-232
117
134
254
122
-283
141
514
(251)
627
US MBS
403
308
217
101
245
217
208
-012
024
-119
015
096
087
047
-197
060
217
101
245
US ABS
215
270
148
177
155
148
125
049
042
-039
-001
042
060
054
-070
020
148
177
155
US CMBS
529
301
324
080
331
324
172
046
-006
-132
035
079
131
086
-303
059
324
080
331
000
ERRORREF
ERRORREF
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
ERRORREF
000
US Short Duration
1-3 Year US Treasuries
192
231
099
155
042
099
131
019
021
-016
-028
024
019
027
-046
-011
099
155
042
1-3 Year US Agencies
175
238
101
177
069
101
125
031
025
-004
-021
027
028
035
-039
000
101
177
069
1-3 Year Corporates
190
288
183
157
183
183
078
070
047
-038
-004
059
059
069
-018
032
183
157
183
lt1 Year Corporates
055
280
094
227
156
094
060
070
063
034
031
042
039
044
094
227
156
AAA Credit Card ABS
235
264
149
167
156
149
134
045
036
-048
-008
041
067
056
-104
015
149
167
156
AAA Auto ABS
182
266
139
176
122
139
105
053
043
-025
-002
037
046
041
-031
015
139
176
122
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
Current Duration
Current Yield
Annual Total Return
Non-annualized Periodic Total Return
For Q4
YTD 2019
2018
2017
Q219
Q119
Q418
Q318
Q218
Q118
Q417
Q317
Q217
Q117
Q416
Q316
2019
2018
2017
US Aggregate Index
US Treasuries
638
192
518
090
229
301
211
257
-059
010
-118
005
038
119
067
-384
-028
512
090
229
US Agencies
401
210
417
136
294
232
181
190
-001
000
-053
006
082
093
113
-210
025
413
136
294
Corporates
764
317
985
-251
627
448
514
-018
097
-098
-232
117
134
254
122
-283
141
962
(251)
627
US MBS
315
270
417
101
245
196
217
208
-012
024
-119
015
096
087
047
-197
060
413
101
245
US ABS
215
221
317
177
155
167
148
125
049
042
-039
-001
042
060
054
-070
020
315
177
155
US CMBS
527
254
662
080
331
328
324
172
046
-006
-132
035
079
131
086
-303
059
652
080
331
000
000
000
000
000
Q118
Q417
Q317
Q217
Q117
Q416
Q316
000
000
US Short Duration
1-3 Year US Treasuries
192
179
247
155
042
147
099
131
019
021
-016
-028
024
019
027
-046
-011
246
155
042
1-3 Year US Agencies
161
196
234
177
069
132
101
125
031
025
-004
-021
027
028
035
-039
000
233
177
069
1-3 Year Corporates
187
242
340
157
183
155
183
078
070
047
-038
-004
059
059
069
-018
032
338
157
183
lt1 Year Corporates
054
251
180
227
156
085
094
060
070
063
034
031
042
039
044
179
227
156
AAA Credit Card ABS
238
216
329
167
156
178
149
134
045
036
-048
-008
041
067
056
-104
015
327
167
156
AAA Auto ABS
187
216
292
176
122
150
139
105
053
043
-025
-002
037
046
041
-031
015
289
176
122
USE Index Group - JS Favorites (MktsampPerf)
(or) pull it mannuallyhellip
To get Qtrly Total Returns gt Select Index gt go to Excess amp Periodic Returns gt Specify end date [Go] gt 3mo Tot Returns
To get Duration amp Yield gt Select Index gt go to Basic Statisitics gt gt Specify end date [Go] gt US Mod Adj Duration amp YTM columns
Agg Index - US Aggregate gt US Treasury Agencies Corporate CMBS ABS US MBS
Short Duration Data -
For 1-3yr US Treasuries amp Agencies gt under GovCredit select Government gt select US Treasury 1-3yr amp US Agency 1-3yr
For 1-3yr Corporates gt under US Aggregate select Corporate gt select Corporate 1-3yr
For lt1yr Corporates gt under Other Americas select Short Term gt select Corporate
For AAA-ABS gt under US Aggregate select Securitized gt select AAA only ABS (Credit Card amp Auto)
While there has been talk of corporate debt reaching new heights as a percentage of US GDP the debt for large companies still remains significantly below what was seen during the financial crisis especially net of cash Furthermore the rise of debt has been modest and remains significantly below 2008 to 2009 levels relative to the ability to pay as a ratio of earnings before interest taxes depreciation and amortization (EBITDA)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Credit card charge-offs in the financial sector have edged higher although theyrsquore still remaining low by historical standards This is a normalization from the decade low attributable to the rapid loan growth in prior years and seasoning of the lending book Overall asset quality remained solid supported by the low unemployment rate and benign credit environment Banks continue to be disciplined in managing loan growth and delinquencies
Based on average NCO rate of nine largest US credit card issuersSources Bloomberg and SVB Asset Management Data as of 512019
0123456789
10
201820172016201520142013201220112010200920082007
Perc
ent
Financial Sector Average core US charge-off rate ()
0
1
2
3
4
5
6
7
American Express Citigroup Bank of America JPMorgan Chase Discover Wells Fargo US Bancorp Capital One Synchrony
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
0719-0077MS-063020
Spread products such as corporate bonds and asset-backed securities offer portfolio diversification and historically attractive enhanced income over comparable Treasuries
During the first half of 2019 credit and ABS yields rallied approximately 70 basis points This rally was primarily due to the dovish shift from the Federal Reserve Risk assets from equities to high-yield bonds rallied as well
Spread products with maturities over one year are currently offering the most attractive yield pick compared to similar-maturity Treasuries This is primarily due to the front-end yield curve inversion
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
The yield curve inversion that occurred at the end of 2018 continued into the first half of 2019 2-year to 7-year Treasuries led the rally with yields falling more than 70 basis points
The 3-month vs 10-year Treasury spread inverted to a low of -26 bps in June and closed the second quarter at -8 bps The 2-year vs 10-year Treasury spread has remained positive in 2019 and finished the second quarter at +25 bps
Sources SVB Asset Management and Bloomberg Data as of 6282019 Past performance is not a guarantee of future results The above is not to be construed as a recommendation for your particular portfolio
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
Quarterly Economic Report
Quarterly Economic ReportPublished in Q3 2019
Thoughts From the Desk
Domestic Economy
Overview
GDP Growth accelerated
Consumption Expect a rebound
Employment Remains solid
Inflation Subdued
Business Outlook Uncertainty looms
Global Economy
Overview
Global Trade Slows
Exports Decline Amid Trade Policy Disputes
US Dollar A pending cut in the works
Pound Still under Brexit pressure
Central Banks
Overview
Historical Interest Rates
Federal Reserve Rate Projections
Central Bank Economic Projections
Central Banks Poised to act
Markets and Performance
Overview
Broad Market Performance
Fixed Income Returns
Corporates Debt growth is manageable
Corporates Stable credit fundamentals
Corporates Credit card charge-offs to normalize
Relative Value Spread products still attractive
2019 Yield Curve Continued inversion
Our Team and Report Authors
Slide Number 33
0719-0077MS-063020
Are not insured by the FDIC or any other federal government agency
Are not deposits of orguaranteed by a bank May lose value
Views expressed are as of the date of this report and subject to change This material including without limitation the statistical information herein is provided for informational purposes only The material is based in part upon information from third-party sources that we believe to be reliable but which has not been independently verified by us and as such we do not represent that the information is accurate or complete This information should not be viewed as tax investment legal or other advice nor is it to be relied on in making an investment or other decision You should obtain relevant and specific professional advice before making any investment decision Nothing relating to the material should be construed as a solicitation offer or recommendation to acquire or dispose of any investment or to engage in any other transaction
None of this material nor its content nor any copy of it may be altered in any way transmitted or distributed to any other party without the prior express written permission of SVB Asset Management SVB Asset Management is a registered investment advisor and nonbank affiliate of Silicon Valley Bank and member of SVB Financial Group
Investment products and services offered by SVB Asset Management
copy2019 SVB Financial Group All rights reserved SVB SVB FINANCIAL GROUP SILICON VALLEY BANK MAKE NEXT HAPPEN NOW and the chevron device are trademarks of SVB Financial Group used under license Silicon Valley Bank is a member of the FDIC and the Federal Reserve System Silicon Valley Bank is the California bank subsidiary of SVB Financial Group (Nasdaq SIVB)
