Western Asset Core Plus Bond Fund Class R · NASDAQ:WAPRX
Western Asset Core Plus Bond Fund Class R — Western Asset Management Company — Earnings Presentation (October 2024)
26 slides from Western Asset Core Plus Bond Fund Class R's earnings presentation, Oct 2, 2024
Slide 1: 4Q24 Market & Strategy Update
4Q24 Market & Strategy Update October 2, 2024 Michael Buchanan Catherine Matthews Chief Investment Officer Global Product Specialist 1
Slide 2: Global Outlook
Global Outlook Global disinflation process ongoing Global growth has downshifted Central banks have begun to ease policy Fixed-income outlook Global inflation will continue to recede Global growth has downshifted, led by China and the eurozone US growth will slow but should avoid recession C
Slide 3: Global Disinflation Is Broad-Based and Ongoing
Global Disinflation Is Broad-Based and Ongoing US Core PCE Nears Fed Target Global Inflation¹ Core PCE 8% 7% Headline 7% Core 6% Core Goods 6% Services 5% 5% 4% Year-over-Year 4% 3% 3% 2% 2% 1% 1% 3m annualized Core PCE 0% 6m annualized Core PCE 0% -1% 1yr annualized Core PCE Fed Core PCE Target -1%
Slide 4: The US Unemployment Rate Has Ticked Higher to 4.2% but Layoffs Remain Low
The US Unemployment Rate Has Ticked Higher to 4.2% but Layoffs Remain Low The “Sahm Rule” has been triggered, but is this time different? Unemployment Rate & Initial Claims for Unemployment Insurance 1,000 9.5 900 Civilian Unemployment Rate: 8.5 800 16 yr+ (right) SA (Thousands) 700 7.5 600 6.5 SA (
Slide 5: US Federal Reserve
US Federal Reserve Fed now cutting, but by how much? Fed Funds 6% Fed Funds Forecast Fed Funds Futures FOMC 5% Forecast 4% 3% 2% 1% 0% 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Source: Federal Reserve, Haver Analytics. As of 30 Sep 24 There is no assurance that any projec
Slide 6: US TIPS
US TIPS Real yields attractive Inflation expectations have fallen along with actual inflation 10-year expected inflation close to Fed targets (TIPS breakeven inflation) Real yields remain high relative to past periods when inflation was at target Red line is a relatively high estimate of the
Slide 7: Ballots, Bonds & Beyond
Ballots, Bonds & Beyond Harris Trump Increase corporate tax rate to 28% from current 21%. Cut corporate tax rate to 15% from current 21%. Allow TCJA expiration for individuals earning > $400,000. Extend all individual TCJA rates. Taxes/Fiscal Expand Child Tax Credit (CTC) with larger credit for newb
Slide 8: China: Structural Issues Remain but Risk of Hard Landing Mitigated
China: Structural Issues Remain but Risk of Hard Landing Scenario Has Been Mitigated Market Concerns Over the Sustainability of Chinese Growth: Stimulus measures announced in late September may not be sufficient to address structural issues and bolster confidence Lack of demonstrated fiscal supp
Slide 9: Europe: Lackluster Growth With Inflation Near Target
Europe: Lackluster Growth With Inflation Near Target Growth: Modest expansion still challenged Inflation: Lower services inflation key to ECB pace going forward ECB: One or potentially two further cuts expected this year ECB: Policy historically tight given growth and inflation Policy HICP G
Slide 10: United Kingdom
United Kingdom “A gradual approach to removing policy restraint remains appropriate” – Bank of England, September 2024 UK Inflation Back at Target Further Wage Growth Normalization Expected 16 10 Headline CPI (YoY) Private Sector Regular Wage Growth (YoY) 14 8 12 Goods (YoY) DMP Expected Wage Growth
Slide 11: Japan
Japan Higher wages along with higher inflation forecasts strongly suggest Japanese yields need to rise Wages Policy Rates Base pay increased 2.7% YoY, the highest level since September The BoJ will tighten policy to normalize real interest rates. 1992, putting upward pressure on service inflation. 8
Slide 12: Australia: Job Market Loosening as Inflation and Growth Wane
Australia: Job Market Loosening as Inflation and Growth Wane RBA on hold until core inflation makes further progress. Headline inflation to retreat as government implements energy subsidies, but core inflation remains the key Loosening job market has seen wages turn lower Improved labor market
Slide 13: Spread Sector Excess Returns
Spread Sector Excess Returns Spread sectors have outperformed. Year-to-Date Ending 30 Sep 24 9 8 7.6 7 6 5 Percent 4.4 4.0 4 3.8 3.4 3 2.1 2.2 2.3 1.9 2.0 2 1.5 1 0.5 0.5 0 EM US US IG Euro IG UK IG US US Australia Non- US EMD Euro European Local MBS Credit Credit Credit CMBS Bank IG Credit Agency H
Slide 14: Corporate Bond Fundamentals
Corporate Bond Fundamentals Fundamentals remain strong. Revenue Growth Uptick After Declining the Previous 8 Quarters Revenue - Overall YoY Growth Revenue - Overall (ex-Commodities) YoY Growth 25 20 15 Percent 10 5 0 -5 -10 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18 1Q19 3Q19 1Q20 3Q20 1Q21 3Q21 1Q22 3Q22 1Q23 3
Slide 15: Corporate Bond Valuations
Corporate Bond Valuations US Credit OAS - BBB vs. A near 15-year tights Bloomberg U.S. Credit Index: Baa – A Option-Adjusted Spread 180 160 140 Option-Adjusted Spread (bps) 120 100 80 60 Average: +57 bps 40 +38 bps 20 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Slide 16: Sector Cyclicality May Look Different Than in the Past
Sector Cyclicality May Look Different Than in the Past Some traditionally cyclical sectors (e.g., energy) have lower leverage than in the past… …while some noncyclical sectors have higher leverage (e.g., US utilities). Net Leverage per Sector in US (12 years - quarterly data) Net Leverage per Se
Slide 17: High-Yield Corporate Bonds: Fundamental Dispersion Supports an Active Approach
High-Yield Corporate Bonds: Fundamental Dispersion Supports an Active Approach …and default rates are moderating High Yield Default Rate LTM 10 8 6 Percent 4 2 2.47% 0 2019 2020 2021 2022 2023 2024 Source: Moody's Investor Service. As of 31 Aug 24 Many companies have maintained discipline with their
Slide 18: Bank Loans: Impact of Fed Rate Cut Cycle
Bank Loans: Impact of Fed Rate Cut Cycle The Fed’s rate-cutting cycle will reduce bank loan total yields and drive significant reduction in companies’ interest costs Bank loan issuers will benefit significantly from lower rates and lower interest costs. Fed Funds Rate Impact on Company Cash Flow Cov
Slide 19: CLO Market and Technicals
CLO Market and Technicals Attractive current yields across most rating categories. AAA CLO spreads offer value vs. comparably rated sectors Cross Sector Yields 20 15.7 15 11.7 10 8.3 7.6 8.2 6.3 6.8 6.5 7.1 5.8 7.0 6.2 7.0 4.4 4.6 4.6 4.7 4.8 5.0 5.2 4.6 4.9 4.9 5.1 5.2 5.4 5 0 OTR 5Y STACR M1B CRT
Slide 20: EM Central Banks Have Been Ahead of the Curve
EM Central Banks Have Been Ahead of the Curve EM vs US Overnight Rates 12 EM policymakers tightened policy aggressively, starting in early 2021, well in front of the Fed. 10 With EM and DM inflation having peaked, EM central banks were only able to tepidly cut rates in front of the 8 Fed. Average EM
Slide 21: US Agency Mortgages Offer Attractive High-Quality Yields
US Agency Mortgages Offer Attractive High-Quality Yields Most US mortgage borrowers have locked in sub-4% mortgage rates during Covid and have limited refinancing incentives at current or lower rates Limited Refinancing Risk Current Rate (6.16) MBA Weekly Refinancing Applications (left) Mortgage R
Slide 22: CMBS Has Outperformed Corporate Credit YTD but Remains Historically Cheap
CMBS Has Outperformed Corporate Credit YTD but Remains Historically Cheap Index Excess Return Year-to-Date 3 Years 30 20 17.23 Percent 8.81 10 1.99 1.91 1.15 3.59 3.03 0 -3.28 -10 AAA CMBS IG Corp BBB CMBS HY Corp AAA CMBS Spread vs. AA Corporate Spread BBB- CMBS Spread vs. BB High Yield Spread 120
Slide 23: Global Outlook
Global Outlook Global disinflation process ongoing Global growth has downshifted Central banks have begun to ease policy Fixed-income outlook Global inflation will continue to recede Global growth has downshifted, led by China and the eurozone US growth will slow but should avoid recession C
Slide 24: Questions & Answers
Questions & Answers OA ie WESTERN ASSET Gn. ee 24
Slide 25: Thank you.
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Slide 26: Risk Disclosure
Risk Disclosure © Western Asset Management Company, LLC 2024. The information contained in these materials (“the materials”) is intended for the exclusive use of the designated recipient (“the recipient”). This information is proprietary and confidential and may contain commercially sensitive inform
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