If You Don’t Like Bonds Now, Maybe You Just Don’t Like Bonds
Our investment team believes the fixed income market has become more attractive, offering the highest yields in about a decade.
Commentary
Imagine a world in which bonds offered about 46% odds of generating a double-
digit annualized quarterly return, roughly 22% odds of a negative return over the
next quarter, and about 5% odds that the historically poor results of 2022 would
be repeated.
These are among the potential scenarios we see, based on our fundamental analysis
and the 5,000 proprietary model simulations we’ve run, conditioned on market
volatility at the end of March, to gauge potential market outcomes, accounting for
a range of possible decisions by the U.S. Federal Reserve and both hard and soft
economic landings (Exhibit 1).
4
These simulations took into account our view of
current and expected market conditions over the next three months.
If You Don’t Like Bonds Now,
Maybe You Just Don’t Like Bonds
KEY TAKEAWAYS
•
Our investment team believes the fixed income market has become more
attractive, offering the potential for meaningful diversification
1
from stocks and the
highest yields in more than a decade.
•
Our proprietary risk models, based on 5,000 simulations, suggest the bond market
(represented by Bloomberg U.S. Aggregate Bond Index) may offer better than
45% odds for an annualized double-digit return over the next quarter, as opposed
to about 5% odds for a quarterly annualized double-digit loss.
•
The yields offered by the bond market as of the end of March may help to hedge
against the potential for increased spread volatility.
•
Participants in the futures market anticipate that the U.S. Federal Reserve will end
its cycle of higher policy rates before the summer, which we think could lead to
higher bond prices.
•
The potential for peak policy rates in 2023 also raises our expectations for positive
bond-market returns, based on the historical return for multiple bond categories
following peak yields.
3
•
We believe one of the most flexible ways to invest in bonds is using an approach
that can adjust for a changing inflation path and allocates across investment-grade
and below-investment-grade securities.
April 2023
Ford O’Neil
Portfolio Manager
Celso Munoz, CFA
Portfolio Manager
Christian Pariseault, CFA
Head of Institutional Portfolio
Managers
Beau Coash
Institutional Portfolio Manager
Stacie Ware, PhD, OLY
Quantitative Analyst
See the Methodology explanation on p. 8 for information about the research approach and the inherent limitations
of simulated projections.
If You Don’t Like Bonds Now, Maybe You Just Don’t Like Bonds
|
2
Past performance is no guarantee of future results.
For illustrative purposes only to depict the probability and range of models based on our historical analysis
and research and the level of market volatility as of 3/31/23. This is not meant to be exhaustive of all possible options or models an advisor may wish to consider,
and will not necessarily come to pass. Source: Fidelity Investments proprietary risk model, most recent data, as of 3/31/23. The risk model simulations are
consistent with the implied volatility regime (a measure of the degree of expected asset-price fluctuations) on the dates shown and the portfolio benchmark
holdings (the Bloomberg U.S. Aggregate Bond Index), along with a dependency structure (the dependency of individual portions of the bond market on other
entities of the same market) across the risk factors that has been estimated from historical relationships and conditioned on the level of volatility present in the
market at that time. The impact on indices uses the sample space of 5,000 simulated factor changes and coincident exposures to project contributions to price
return for each factor. Probability of return scenario analysis has inherent limitations, due to the prospective application of a model designed using predicted
and historical data trends and may not reflect the effect that any future material market or economic factors could have on performance. The probability of an
annualized quarterly projection of 10% or worse return for the Bloomberg US Credit Bond 1–3 Year Index was negligible and, therefore, not included in the
exhibit. See the Methodology explanation on p. 8 for information about the research approach and the inherent limitations of simulated projections.
EXHIBIT 1:
Historical Return Scenario Analysis
We believe the fixed income market has become more attractive, offering the potential for
meaningful diversification from stocks, and the highest yields in more than a decade.
Moreover, we’ve received feedback about the potential peak for interest rates from all three
of our analyst teams, covering quantitative, macro, and sector perspectives.
Our optimism is based on the data in our quant models. We believe:
•
Upside potential has increased across fixed income markets.
•
The overall market, as measured by the Bloomberg U.S. Aggregate Bond Index, shows
about a 5% quarterly annualized probability of a large drawdown (10%+) for 2023,
compared with a peak probability of about 10% in 2022.
•
As of March 31, 2023, the probability of an absolute loss over the next quarter in short-
duration credit is less than 5%, down from 50% in mid-2022.
•
We see the strongest potential for upside among high-quality U.S. long credit rated A+,
although our analysis suggests these bonds also have the highest probability of a loss over the
next quarter (28%).
Jun
Jan
Jul
Jan
2021
2022
2023
Jun
Jan
Jul
Jan
2021
2022
2023
Jun
Jan
Jul
Jan
2021
2022
2022
2022
2022
2023
0%
10%
20%
30%
40%
50%
0%
4%
2%
6%
8%
10%
12%
0%
20%
10%
30%
40%
50%
60%
Probability of a 10% or Better
Annualized Quarterly Projected Return
Bloomberg U.S. Credit Bond 1–3 Year
Bloomberg U.S. Aggregate Bond Index
Probability of a -10% or Worse
Annualized Quarterly Projected Return
Probability of a Loss in the
Subsequent Quarter
If You Don’t Like Bonds Now, Maybe You Just Don’t Like Bonds
|
3
Higher Yields Provide a Cushion
It’s mainly the market’s attractive yield cushion that
has led us to believe that the market could see a
positive return the next 12 months. As of March 31,
2023, the yield to worst
5
for the Bloomberg Aggregate
Bond Index was 4.39%, and 30-day SEC yield for the
Fidelity Total Bond Fund, which has the flexibility to
invest across bond asset classes and a range of credit
qualities, stood at 5.29% (Exhibit 2).
We typically consider the yield the fund generates to be
a quarterly performance advantage. Thus, we believe
the yields offered by the fund as of the end of March
may help to hedge against the potential for increased
spread volatility. At the end of the first quarter of 2023,
the annualized yield for the Bloomberg U.S. Aggregate
Bond Index more than doubled that of the S&P 500
index, and the fund’s yield more than tripled that of
S&P 500. Therefore, we see greater potential for stocks
to deplete their yield cushion, compared with bonds.
EXHIBIT 2:
The Yield Cushion
Annualized Yields for Bonds versus Stocks
Source: Bloomberg Finance L.P. and Fidelity Investments. Yields for the S&P
500 index and the Bloomberg U.S. Aggregate Bond Index reflect current
annualized yields as of 3/31/23. The yields stated are no guarantee of future
results. It is not possible to invest directly in an index. The S&P 500 yield
is the dividend yield as of the date indicated. Yield for the Bloomberg U.S.
Aggregate Bond Index is the yield-to-worst
5
figure as of 3/31/23. The yield for
Fidelity Total Bond Fund is the 30-day SEC yield as of 3/31/23 (see endnote
2 for a definition). As of 3/31/23, it was 5.29%.
If we see price gains for bonds in 2023, we would
expect total market returns to exceed the return
generated from just yields. We believe the overall
market could benefit from the power of compounding,
limited bond supply, and real rates that have moved
into positive territory as core inflation continues to
recede from its 2022 high.
The latter is particularly important because it means
that investors have potential to surpass the rate of
inflation without taking on excessive risk. As of the
end of March, the 10-year Treasury yield at roughly
3.5% was more than a full percentage point above the
10-year breakeven inflation rate
6
of about 2.3%. Keep
in mind that, depending on market conditions, a mix of
Treasuries, high-grade corporate bonds, asset-backed
securities, and similar risk assets could earn a healthy
premium over Treasuries, and exposure to certain plus
sectors—including high-yield bonds—could generate
an even larger spread premium, although these
securities introduce greater default risk.
3
0%
1%
2%
3%
4%
5%
6%
S&P 500 index
1.68%
4.39%
5.29%
Bloomberg U.S. Aggregate
Bond Index
Fidelity Total
Bond Fund
EXHIBIT 3:
Core Inflation Assuming Different Monthly
Trajectories
M/M is month over month. Source: U.S. Bureau of Labor Statistics,
Haver Analytics, and Fidelity Investments, as of 3/14/23. Data calculated
monthly. Core inflation estimates are derived from historical relationships
and conditioned on the level of volatility present in the market at that time.
Projected core inflation is not reflective of actual results, given that market
conditions may vary.
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
Jan
Jul
Jan
Jul
Jan
Jul
Jan
Jul
2020
2021
2022
2023
Core CPI
7
Percent Year over Year
M/M Trajectory: -0/1%
The most
probable
scenarios
0.1%
0.0%
0.2%
0.3%
0.4%
0.5%
If You Don’t Like Bonds Now, Maybe You Just Don’t Like Bonds
|
4
4.0%
5.0%
4.5%
Implied Federal Funds Rate
Mar
May
Jul
Sept
Nov
Jan
2023
2023
2023
2024
2023
2023
4.96%
From a macro perspective, we believe the rate of
inflation could continue to decline in the coming
months. According to our scenario analysis, the
inflation rate through mid-2023 is likely to recede
from the 2022 peak for the core consumer price
index (Exhibit 3). The two most likely scenarios, in our
view, would bring core CPI
7
below 4%. We believe the
strength of labor markets largely will determine where
core CPI ultimately lands.
Lower inflation could make it far more likely that the
Fed will stop hiking rates in 2023, thus improving the
prospects for longer-term bonds. Participants in the
fed funds futures market anticipate that the Fed will
end its cycle of higher policy rates before the summer,
which could lead to higher long-term bond prices. The
market has been discounting small rate hikes, with the
fed funds rate possibly peaking in May at about 4.96%
(Exhibit 4). Thereafter, it’s possible the yield curve
could move lower.
EXHIBIT 4:
Fed Funds Implied Rate
Fed funds implied rate measures the current fed funds rate relative to the
forward rate, as reflected in the futures market. Source: Bloomberg Finance
L.P. as of 3/31/23. Fed funds futures are not a guarantee of future results for
the fed funds rate.
Returns from Peak Yields
The potential for market yields peaking in 2023 is
another factor that raises our expectations for positive
bond-market returns. Exhibit 5 shows three- and five-
year returns for proxies representing corporate bonds,
high-yield bonds, and U.S. credit. Following the past
five peaks for market yields, all three bond segments
averaged double-digit returns in the three and five
years following peak yields for the bond market.
3
What If We’re Wrong?
We believe the Fed would likely have to “lose its
battle” with inflation in order to see a strongly
negative return for the overall bond market in the
coming months. In our view, a strongly negative return
could occur, for example, if we saw an unforeseen
surge in fuel prices, or if a resurgent economy in China
after the easing of COVID-19 lockdowns led to a spike
in labor costs and global materials prices.
We caution that there are still many possible inflation
paths, which means that every month over the next 12
months, the bond market will need to “check in” with
the monthly inflation data. The process of a check-in
may at times induce volatility. We repeat our research
monthly and recalibrate our proprietary risk model
following these market check-ins to adjust for the
changing levels of market volatility. That said, our teams
believe it would take a radically different inflation
course and/or significant spread widening to result in
a very pessimistic outcome for the bond market.
If You Don’t Like Bonds Now, Maybe You Just Don’t Like Bonds
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5
A Diversified Bond Approach
In our view, one of the most flexible ways to invest in bonds is using an approach that can
adjust for a changing inflation path and allocates across investment-grade and below-
investment-grade securities.
1
We believe this strategy, which utilizes sector rotation, asset
allocation, and security selection to help manage the fund’s overall risk and interest rate risk,
can capitalize on wide total-return dispersions. Our managers have the freedom to
dial up and dial down risk based on changing market and economic conditions.
Part of the appeal of this approach for some investors is that the ability to access higher-
yielding bond segments within a diversified portfolio may help to buffer drawdowns, thereby
attempting to enhance return potential while managing risk.
3
The compounding of these
higher yields also may help to insulate against price shocks.
Fidelity Total Bond Fund Positioning as of February 28, 2023:
Duration View:
Favoring intermediate-term and longer durations, which could benefit if
inflation declines faster than current market expectations.
Leveraged Loans:
Overweight: Floating rate coupons continue to reset higher with Fed hikes.
Spreads are still attractive, given our expectations of relatively low defaults in the coming year.
High Yield:
Overweight: Within this market, the focus is on idiosyncratic BB-rated credit ideas,
as opposed to generic beta to the sector.
U.S. Investment-Grade (IG) Corporates:
Overweight: Within this segment, we are
underweight long credit, in favor of intermediate and short credit with stories that our credit
analysts think can improve on a relative basis through this market cycle.
Inflation-Protected Debt:
The fund has no TIPS
8
exposure. The TIPS market either believes
the Fed will win the inflation fight or the illiquidity of the sector is driving down prices.
EXHIBIT 5:
Returns Following Peak Yields
Past performance is no guarantee of future results.
Source: Bloomberg Finance L.P., based on historical data, with the most recent
data collected as of 3/31/23. *Five-year returns starting 11/30/18 are only through 3/31/23. Index returns calculated using monthly
data. US Credit returns calculated using the Bloomberg U.S. Credit Total Return Value Unhedged USD Index. U.S. Corporate Bonds
calculated using the Bloomberg U.S. Corporate Total Return Value Unhedged USD Index. U.S. High Yield calculated using the
Bloomberg Barclays U.S. Corporate HY Total Return Value Unhedged USD Index. Leveraged Loans calculated using the S&P/LSTA
Leveraged Loan Total Return Index. It is not possible to invest directly in an index.
2/29/2000
4/30/2002
7/31/2006
1/31/2014
11/30/2018
Index
3-Year
5-Year
3-Year
5-Year
3-Year
5-Year
3-Year
5-Year
3-Year
5-Year
*
S&P500
-36.0%
-8.6%
8.5%
35.5%
-22.7%
15.6%
29.0%
50.3%
79.3%
63.7%
US Credit
34.4%
53.0%
24.3%
35.5%
15.3%
40.1%
12.7%
17.1%
24.9%
9.5%
US Corp
33.5%
52.9%
24.7%
35.7%
14.1%
40.5%
13.3%
17.5%
26.2%
10.0%
US HY
1.4%
40.5%
36.7%
63.9%
6.4%
56.0%
14.6%
20.7%
24.0%
15.0%
LL
11.9%
28.4%
17.7%
33.0%
-0.9%
28.5%
11.1%
16.2%
13.3%
16.6%
Starting from:
If You Don’t Like Bonds Now, Maybe You Just Don’t Like Bonds
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6
Structured Product:
Overweight: The fund holds AAA-rated collateralized loan obligations
for floating rate income and relative defensiveness. We’ve added to some asset-backed
securities holdings, including in the aircraft industry. Spreads in traditional auto and credit
card asset-backed securities are too tight. We also see some single-asset, single-borrower
opportunities among commercial mortgage-backed securities.
Agency Mortgage-Backed Securities:
Underweight: Sector spreads have snapped back after
significant underperformance but are not offering compelling risk-reward.
Non-Dollar:
There is effectively no non-dollar exposure in the fund, as all non-dollar holdings
are hedged back to the U.S. dollar.
Average Annual Total Return
(As of 3/31/23) Fund inception 10/15/2002. Gross expense ratio as of the most recent prospectus is 0.45%.
Index
1-Year
3-Year
5-Year
10-Year
Life
Fidelity® Total Bond Fund (Retail Class) FTBFX
-4.90%
-0.41%
1.64%
2.07%
4.02%
BBg US Agg Bond
-4.78%
-2.77%
0.91%
1.36%
3.32%
BBg US Universal
-4.61%
-2.02%
1.05%
1.62%
3.67%
The performance data featured represents past performance, which is no guarantee of future results. Investment return and
principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your shares. Current
performance may be higher or lower than the performance data quoted. To learn more or to obtain the most recent month-end
or other share-class performance, visit fidelity.com/performance, institutional.fidelity.com, or 401k.com.
Index returns include reinvestment of capital gains and dividends, if any, but do not reflect any fees or expenses. It is not
possible to invest in an index.
Before investing in any mutual fund, please carefully consider the investment objectives, risks, charges, and expenses.
For this and other information, call or write Fidelity for a free prospectus or, if available, a summary prospectus. Read it
carefully before you invest.
If You Don’t Like Bonds Now, Maybe You Just Don’t Like Bonds
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7
Information provided in, and presentation of, this document are
for informational and educational purposes only and are not a
recommendation to take any particular action, or any action at all, nor an
offer or solicitation to buy or sell any securities or services presented. It is
not investment advice. Fidelity does not provide legal or tax advice.
Before making any investment decisions, you should consult with your own
professional advisers and take into account all of the particular facts and
circumstances of your individual situation. Fidelity and its representatives
may have a conflict of interest in the products or services mentioned in
these materials because they have a financial interest in them, and receive
compensation, directly or indirectly, in connection with the management,
distribution, and/or servicing of these products or services, including Fidelity
funds, certain third-party funds and products, and certain investment
services.
Views expressed are as of the date indicated, based on the information
available at that time, and may change based on market and other conditions.
Unless otherwise noted, the opinions provided are those of the author and
not necessarily those of Fidelity Investments or its affiliates. Fidelity does not
assume any duty to update any of the information.
Investment decisions should be based on an individual’s own goals, time
horizon, and tolerance for risk. Nothing in this content should be considered
to be legal or tax advice, and you are encouraged to consult your own lawyer,
accountant, or other advisor before making any financial decision.
Stock markets are volatile and can fluctuate significantly in response to
company, industry, political, regulatory, market, or economic developments.
Foreign markets can be more volatile than U.S. markets due to increased
risks of adverse issuer, political, market, or economic developments, all
of which are magnified in emerging markets. These risks are particularly
significant for investments that focus on a single country or region.
Risks for Fidelity Total Bond Fund
In general, the bond market is volatile, and fixed income securities carry
interest rate risk. (As interest rates rise, bond prices usually fall, and vice
versa. This effect is usually more pronounced for longer-term securities.)
Fixed income securities also carry inflation risk, liquidity risk, call risk and
credit and default risks for both issuers and counterparties. Unlike individual
bonds, most bond funds do not have a maturity date, so avoiding losses
caused by price volatility by holding them until maturity is not possible.
Lower-quality bonds can be more volatile and have greater risk of default than
higher-quality bonds. Foreign securities are subject to interest rate, currency
exchange rate, economic, and political risks, all of which are magnified in
emerging markets. Leverage can increase market exposure and magnify
investment risk.
Investing involves risk, including risk of loss.
Past performance and dividend rates are historical and do not guarantee
future results.
Credit ratings for a rated issuer or security are categorized using the highest
credit rating among the following three Nationally Recognized Statistical
Rating Organizations (“NRSRO”): Moody’s Investors Service (Moody’s);
Standard & Poor’s Rating Services (S&P); or Fitch, Inc.
Diversification and asset allocation do not ensure a profit or guarantee against
loss.
All indices are unmanaged. You cannot invest directly in an index.
Index Definitions:
The Bloomberg U.S. Aggregate Bond Index
is a broad-based flagship
benchmark that measures the investment grade, U.S. dollar-denominated,
fixed-rate taxable bond market. The index includes Treasuries, government-
related and corporate securities, mortgage-back securities (agency fixed-rate
pass-throughs), asset-backed securities, and collateralized mortgage-backed
securities (agency and non-agency).
Bloomberg U.S. Credit Bond 1–3 Year Index
is a market value–weighted
index of investment-grade corporate fixed-rate debt issues with maturities in
the range of one to three years.
S&P 500 index
is a market capitalization-weighted index of 500 common
stocks chosen for market size, liquidity, and industry group representation to
represent U.S. equity performance.
Bloomberg U.S. Credit Total Return Value Unhedged USD Index
is a total
return, unhedged index of investment-grade corporate fixed-rate debt issues
with maturities of one year or more.
Bloomberg U.S. Corporate Total Return Value Unhedged USD Index
is
a total return, unhedged index of the investment-grade, fixed-rate, taxable
corporate bond market. It includes USD denominated securities publicly
issued by U.S. and non-U.S. industrial, utility, and financial issuers.
Bloomberg Barclays U.S. Corporate HY Total Return Value Unhedged USD
Index
is a total return, unhedged index of U.S. dollar-denominated, high-yield,
fixed-rate corporate bonds.
S&P/LSTA Leveraged Loan Total Return Index
is a total return index
designed to represent the performance of U.S. dollar-denominated
institutional leveraged loan portfolios using current market weightings,
spreads, and interest payments.
Bloomberg U.S. Universal Bond Index
represents the union of the
Bloomberg US Aggregate Bond Index, the Bloomberg U.S. Corporate
High Yield Bond Index, the Bloomberg 144A Bond Index, the Bloomberg
Eurodollar Bond Index, the Bloomberg Emerging Markets Aggregate USD
Bond Index, and the non-ERISA portion of the Bloomberg U.S. CMBS Index.
Municipal debt, private placements, and non-dollar-denominated issues
are excluded from the index. The only constituent of the index that includes
floating-rate debt is the Bloomberg Emerging Markets Aggregate USD Bond
Index.
Third-party marks are the property of their respective owners; all other marks
are the property of FMR LLC.
Fidelity Institutional
®
provides investment products through Fidelity Distributors
Company LLC; clearing, custody, or other brokerage services through National
Financial Services LLC or Fidelity Brokerage Services LLC (Members NYSE,
SIPC); and institutional advisory services through Fidelity Institutional Wealth
Adviser LLC.
Institutional asset management is provided by FIAM LLC and Fidelity
Institutional Asset Management Trust Company.
Endnotes
1
Diversification does not ensure a profit or guarantee against a loss.
2
The 30-day yield is a standard yield calculation developed by the
Securities and Exchange Commission for bond funds. The yield is
calculated by dividing the net investment income per share earned during
the 30-day period by the maximum offering price per share on the last day
of the period. The yield figure reflects the dividends and interest earned
during the 30-day period, after the deduction of the fund’s expenses. It is
sometimes referred to as “SEC 30-Day Yield” or “standardized yield.”
3
Past performance is no guarantee of future results.
4
Hard economic landing refers to a marked economic slowdown following
a period of rapid growth. Soft economic landing refers to a cyclical
economic slowdown that avoids a
recession.
5
Yield to worst measures the lowest possible yield on a bond or bond
index, not taking into account potential defaults.
6
Breakeven inflation rate measures the difference between nominal
(stated) yields and real (inflation-adjusted) yields.
7
Core CPI is the core consumer price index, which measures the change
in the cost of goods and services over time, excluding volatile factors, such
as food and energy.
8
TIPS are Treasury Inflation-Protected Securities, a type of U.S. Treasury
bond that is indexed to a gauge of inflation.
Author
Ford O’Neil
Portfolio Manager
Ford is a portfolio manager in the Fixed Income division at Fidelity
Investments, and is co-lead manager of Fidelity and Fidelity Advisor
Total Bond Funds.
Celso Munoz, CFA
Portfolio Manager
Celso is a portfolio manager in the Fixed Income division at Fidelity
Investments, and is co-lead manager of Fidelity and Fidelity Advisor
Total Bond Funds.
Christian Pariseault, CFA
Head of Institutional Portfolio Managers
Christian heads Institutional Portfolio Management at Fidelity
Investments. The institutional portfolio management team is a group
within Fidelity’s Asset Management Solutions division, an integrated
investment, distribution, and client service organization dedicated to
meeting the unique needs of the institutional marketplace.
Beau Coash
Institutional Portfolio Manager
Beau is an institutional portfolio manager for fixed income strategies
at Fidelity Investments. In this role, he is an active part of the
portfolio management team and represents the team’s capabilities,
thought processes, and views to clients and consultants.
Stacie Ware, PhD, OLY
Senior Quantitative Analyst
Stacie works as part of the investment team and employs
mathematical and statistical models that support Fidelity’s core, core
plus, and tactical bond strategies.
Fidelity Thought Leadership Vice President Michael Tarsala provided editorial direction for this article.
Methodology
Simulated projections have certain inherent limitations since they do not reflect the impact that material economic and market factors might have. Since the
activity in a simulation has not actually occurred, the results of the simulation may under- or overcompensate for the impact, if any, of certain market factors
and may underestimate the impact of market extreme and the related risk of loss. It is important to remember that this process is based on assumptions that
may not reflect the behavior of actual events. A different set of assumptions would create a different probability distribution. Expert opinion regarding expected
returns, volatility, and market trends vary widely.
The simulations are not representative of the performance of any client account. All of the graphs and other
information are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
For this study, we ran 5,000 risk factor and return simulations from our proprietary risk model for each date from June 2021 through January 2023. We chose
these dates because they coincided with the trend of a rising probability of a higher bond market return and lower probability of a negative return. Based on
this, we calculated the probabilities that the total index return would be above 250 basis points and below -250 basis points over the next three months on a
rolling basis, then annualized these results. As a baseline, we assumed 250 basis points would be on pace for a +10% return and -250 basis points would be
on pace for a -10% return over the course of a year. When modeling the distribution of expected returns, we simulated risk factors, including rates and spreads,
in a correlated manner and with forward-looking (consistent with the Chicago Board Options Exchange’s CBOE Volatility Index and the Merrill Lynch Option
Volatility Estimate) estimates of volatility. We then computed fund returns using sensitivities (spread betas, durations, and spread durations) in each simulation,
which resulted in the distribution of the expected returns. Using this methodology, we simulated the distribution of returns for each date in the exhibit on a rolling
monthly basis.
Third-party trademarks and service marks are the property of their respective owners. All other trademarks and service marks are the property of FMR LLC or its
affiliated companies.
The Chartered Financial Analyst (CFA) designation is offered by the CFA Institute. To obtain the CFA charter, candidates must pass three exams demonstrating
their competence, integrity, and extensive knowledge in accounting, ethical and professional standards, economics, portfolio management, and security analysis,
and must also have at least four years of qualifying work experience, among other requirements. CFA
®
and Chartered Financial Analyst
®
are registered trademarks
owned by CFA Institute.
Before investing, consider the mutual fund’s investment objectives, risks, charges, and expenses. Contact Fidelity or visit i.fidelity.com for a prospectus or, if
available, a summary prospectus containing this information. Read it carefully.
© 2023 FMR LLC. All rights reserved.
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Thought Leadership
Title
If You Don’t Like Bonds Now, Maybe You Just Don’t Like Bonds
Description
(250 characters incl. spaces)
Our investment team believes the fixed income market has become
more attractive, offering the highest yields in about a decade.
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