One advantage of having 50 years in the fixed income business is watching markets grow from their infancy. One such market is the global investment-grade (IG) universe.
When T. Rowe Price set up its fixed income division in 1971, bond investing was a home-biased business: the average US or European investor had little reason to venture beyond the government bonds of their home country. It would be nearly two decades before the Bloomberg Global Aggregate Index was launched.
By the time I started investing in 1991, this soon-to-become-key benchmark contained about 7,000 issuers. Today, there are more than 27,000 names in the global IG toolkit. Let's explore this growth, and draw some conclusions that could be relevant for future fixed income investing.
High yields in the 1970s and 80s
Towards the end of the 1970s, bond markets on both sides of the Atlantic deepened and broadened as interest rates became too high to ignore.
More than a decade of expansionary fiscal policy, with economic growth financed by government borrowing, together with the oil price shock of 1973/74 (which saw a 300% increase in oil prices) contributed to a surge in inflation. This resulted in a course correction by policymakers, and a move to monetarism as conceived by Milton Friedman: the idea that high interest rates were required to fight inflation.
The bond market took its cue from this change in economic policy orthodoxy, and bond yields soared: US Treasury yields topped 15% in 1981 and stayed high for the rest of the decade. Little did I realise, when I started my investing career, that we were in the early stages of a 30-year bull run.
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