Western Asset Core Plus Bond Fund Class R · NASDAQ:WAPRX
Western Asset Core Plus Bond Fund Class R — Western Asset — Investor Presentation (August 2023)
20 slides from Western Asset Core Plus Bond Fund Class R's investor presentation, Aug 10, 2023
Slide 1: Strategy Update: US Core and Core Plus
Strategy Update: US Core and Core Plus August 10, 2023 Mark Lindbloom Travis M. Carr, CFA Portfolio Manager Product Specialist 1
Slide 2: Inflation Has Been Trending Lower
Inflation Has Been Trending Lower Most measures of inflation have been heading lower and are anticipated to continue on this path. Core CPI and Component Forecasts ApartmentList Data vs BLS Rent Year Over Year 6-mo annualized rate with Base Case and Alternative Scenario 14% 20% 12% Core CPI 18% Apar
Slide 3: Labor Market Loosening and Wage Growth Moderating
Labor Market Loosening and Wage Growth Moderating Employment data is showing some signs of cooling with job openings declining and wages moving lower. Job Openings* (left) Quits* (right) Average Hourly Earnings* 9% 6% 8% 8% 5% 7% 6% 6% 4% 5% 3% 4% 4% 3% 2% 2% 2% 1% 1% 0% 0% 0% 2012 2014 2016 2018 20
Slide 4: Fed Policy Has Been Restrictive for an Extended Period and Is Tighter Than It Looks
Fed Policy Has Been Restrictive for an Extended Period and Is Tighter Than It Looks “We have come a long way in policy tightening, and the stance of policy is restrictive … Having come this far, we can afford to look at the data and the evolving outlook and make careful assessments.” – Chair Powell,
Slide 5: Regional Banking Challenges Have Contributed to Tighter Credit Conditions
Regional Banking Challenges Have Contributed to Tighter Credit Conditions Regional Banks Face Challenging Environment 20% “Developments in the financial sector are 10% contributing to tighter credit conditions and are 0% likely to weigh on economic growth, hiring and -10% inflation. So as a result,
Slide 6: Real Yields Above Pre-Pandemic Across the Curve
Real Yields Above Pre-Pandemic Across the Curve Real Yields Above Pre-Pandemic Across the Curve 5-yr TIPS 10-yr TIPS 30-yr TIPS 2.50 2.50 2.00 2.00 1.50 1.50 1.00 1.00 0.50 0.50 Real Yield Real Yield 0.00 0.00 -0.50 -0.50 -1.00 -1.00 -1.50 -1.50 -2.00 -2.00 -2.50 -2.50 Jan 17 Jul 17 Jan 18 Jul 18 Ja
Slide 7: Fixed-Income Valuations
Fixed-Income Valuations Yield-to-Worst Across Fixed-Income Sectors (Past 10 Years) 16 Current 10-Year Median 14 12 11.2% 10 Yield-to-Worst (%) 8.4% 8.5% 8 7.2% 6.8% 6.9% 6.0% 6.3% 6 5.5% 5.5% 4.8% 6.4% 4.4% 4.4% 6.1% 5.7% 5.8% 4 5.1% 4.8% 3.9% 2 3.2% 2.8% 2.8% 1.5% 1.7% 0 1.0% USTs Municipals IG MBS
Slide 8: Agency Mortgage-Backed Securities: Fundamentals and Valuations Have Improved
Agency Mortgage-Backed Securities: Fundamentals and Valuations Have Improved Mortgage spreads have widened significantly as Fed and bank support diminished Agency MBS spreads have widened with elevated volatility and yield curve inversion Prepayment risk remains muted as mortgage borrowers hav
Slide 9: Mortgage Credit Offers Attractive Relative Value
Mortgage Credit Offers Attractive Relative Value While real estate prices are expected to cool from the record increases, market spreads are elevated with increased risk premiums During the housing boom of Covid, lending stayed conservative and single family markets remain well supported by long
Slide 10: Valuation: US Credit "Fair" at +104 OAS
Valuation: US Credit “Fair” at +104 OAS Bloomberg U.S. Credit Index: Option-Adjusted Spread 600 +545 bps 500 Option-Adjusted Spread (bps) 400 +341 bps 300 +241 bps +231 bps 200 +154 bps Historical Average¹: +140 bps Historical Average Excluding Financial Crisis and Pandemic²: +125 bps 100 Credit OAS
Slide 11: High-Yield Credit: Valuations Are Compelling
High-Yield Credit: Valuations Are Compelling Yields rose by more than 4% since 2021 as rates rose Spreads now imply much higher defaults and spreads widened than the average since 1970 12 50 Default Rates (%) 10 8.53 40 34.1 Cumulative 27.9 Yield (%) 8 30 6 4.22 18.0 4 20 2 10 0 0 31 Dec 21 30 Jun 2
Slide 12: Emerging Markets: The USD and Commodities Are Key Drivers
Emerging Markets: The USD and Commodities Are Key Drivers EM central banks are closer to the end of the tightening cycle relative to the developed world USD relative strength and commodity prices are both inputs into EM economic conditions and returns. A Fed pause combined with China reopening
Slide 13: Growth Risks Contribute to Negative Correlation Between Rates and Credit
Growth Risks Contribute to Negative Correlation Between Rates and Credit Fundamental reasons are demand for safe assets, reassessment of growth and inflation expectations, and Fed response. Correlation of US Treasury Yields and Investment-Grade OAS 0.60 0.40 0.20 0.00 -0.20 -0.40 -0.60 -0.80 -1.00 2
Slide 14: Sector Exposure
Sector Exposure Western Asset Representative Core Plus Portfolio vs. Bloomberg US Aggregate USD Unhedged Index Key Rate Duration (yrs) July 31, 2023 December 31, 2022 -0.32 -0.09 6-Month 6-Month 0.06 0.06 1.00 0.09 2-Year 2-Year 0.59 0.61 1.93 1.85 5-Year 5-Year 1.45 1.49 1.39 1.38 10-Year 10-Year 1
Slide 15: Questions & Answers
Questions & Answers 15 OA
Slide 16: Thank you.
Thank you. “—EWESTERN ASSET
Slide 17: Performance Disclosure
Performance Disclosure December 31, 2022 17
Slide 18: Performance Disclosure
Performance Disclosure December 31, 2022 18
Slide 19: Performance Disclosure
Performance Disclosure December 31, 2022 For GIPS® purposes, the Firm is defined as Western Asset, a primarily fixed-income investment the Composite. The benchmark presented was obtained from third party sources deemed reliable manager comprised of Western Asset Management Company, LLC; Western Asse
Slide 20: Risk Disclosure
Risk Disclosure © Western Asset Management Company, LLC 2023. This publication is the property of Western Asset and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated as confidenti