Monthly Market Commentary 10 a 22 D · Quantitative Easing in Perspective | Fed Balance Sheet...

Monthly Market CommentaryMay 2020

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OverviewThe risk-on rally in global markets that began in late March continued in May as many countries began reopening their economies as growth of COVID-19 cases slowed. As of May 31, there were more than 6.2 million confirmed global cases, while the U.S. had more than 100,000 confirmed COVID-19 deaths, representing nearly 30% of confirmed global deaths. For the month, the S&P 500 returned 4.8%, but it is down 5.0% year-to-date (YTD). The Nasdaq Composite returned 6.9% and is positive 6.3% YTD. The MCSI All Country World Index (ACWI) returned 4.4%, while the MSCI Emerging Markets Index returned 0.8%. Credit markets rose sharply, generally led by gains in high yield corporate bonds and bank loans. Global government bond markets were broadly flat. After a turbulent April, oil markets returned to early March price levels as West Texas Intermediate (WTI) crude rose 55%, a record monthly advance. (Figure 1)

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Equities Fixed Income FX Commodities

Figure 1Source: Bloomberg

May 2020 and Year-to-Date Performance of Asset Classes | Denominated in U.S. dollar

The Federal Reserve’s balance sheet expanded to more than $7 trillion dollars in May, increasing $2.79 trillion since the Fed first announced its asset purchasing program in March, which is significantly larger than previous quantitative easing (QE) programs. (See Figure 2 on following page.) May also marked the first purchases in the Secondary Market Corporate Credit Facility (SMCCF), broadening asset holdings from U.S. Treasuries and Agency mortgage-backed securities (AMBS) to include exchange-traded funds (ETFs) backed by U.S. corporate debt. Fed Chairman Powell also reassured market participants during the month that asset purchases are the Fed’s preferred monetary policy tool as opposed to negative interest rates, stating that the Federal Open Market Committee’s “view on negative rates really has not changed. This is not something that we’re looking at.” 1

Global central banks remained accommodating. The European Central Bank (ECB) proposed a fiscal stimulus package that could be as large as €750 billion ($820 billion), which would be in addition to March’s €750 billion emergency asset-purchase program. ECB President Christine Lagarde warned that the economy could contract between 8% and 12% this year. In Japan, Prime Minister Shinzo Abe delivered another ¥117 trillion ($1.1 trillion) in economic stimulus and broke the record for spending in an extra budget for the second time in the month. The Japanese government and the Bank of Japan (BoJ) issued a rare joint statement pledging to cooperate in getting funds to struggling businesses after the BoJ unveiled a package of loan supports for small firms at an emergency meeting. Despite core inflation going negative for the first time since 2016, the BoJ kept rates unchanged.

1 Statement from Federal Reserve Chairman Jerome Powell, May 13, 2020, Petersen Institute for International Economics, Washington, D.C. (via webcast)


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Quantitative Easing in Perspective | Fed Balance Sheet During QE

U.S. economic data largely remained weak, although there appears to be nascent signs some data might have bottomed. For the week ended May 23, initial jobless claims were in line with expectations at 2.12 million, a decrease of 323,000 from the previous week. Continuing claims unexpectedly declined 3.86 million to 21.05 million, the first drop in continuing claims since the COVID-19 outbreak. New-home sales were surprisingly strong in April at 0.6% month-over-month (MoM) relative to a negative 23.4% consensus estimate and negative 13.7% in March. The annual pace of 623,000 new-home sales was also well above the 480,000 sales forecast. US ISM Manufacturing PMI® increased to 43.1 in May from 41.5 in April, which was the lowest reading since April of 2009. A consistent PMI® above 42.8 over a period of time generally indicates an expansion of the overall economy. Conference Board Consumer Confidence for May was slightly lower than consensus expectations at 86.6 and marginally higher than April’s revised reading of 85.7. U.S. retail sales for April declined 16.4% MoM while declining 21.6% year-over-year, a record decline for the data set. All but one category declined in April: Non-store retailers, which include online retailers, marked an 8.4% sales increase MoM. In addition, U.S. first quarter annualized GDP was revised to negative 5.0% quarter-over-over from negative 4.8%. Consumption and business investment were revised higher while inventories declined more than previous estimates.

In a White House address on May 29, President Trump announced the removal of Hong Kong’s special trade status with the U.S. and promised sanctions against Chinese and Hong Kong officials in response to Beijing’s new national security law and “pattern of misconduct.” The president also terminated the U.S.’s relationship with the World Health Organization in response to its initial handling of the COVID-19 outbreak in China. While Trump stopped short of any mention of withdrawing from Phase One trade deal negotiations, the pronouncements signaled that tensions between the U.S. and China could remain a focal point for investors for the rest of 2020.

1DBL/DSL/DLY Webcast – June 2020

Quantitative Easing in Perspective

Source: Bloomberg, DoubleLineQE = Quantitative Easing

Fed Balance Sheet Change During QE

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11/26/08 – 3/31/10 11/3/10 – 6/29/11 9/21/11 – 6/20/12 9/12/12 – 10/29/14 3/11/20 – 5/27/20Figure 2Source: Bloomberg, DoubleLine


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U.S. Government SecuritiesThe Bloomberg Barclays US Treasury Index returned -0.25% in May, bringing its YTD gain to 8.61%.

The Treasury market was unusually quiescent for the month. Market participants gained confidence that neither a COVID-19-induced deflation nor a shift in Federal Reserve policy would drag rates into negative territory. The Fed’s commitment to low policy rates and ongoing asset purchases seemed to assure that rates would remain capped despite the surge in Treasury issuance. Treasury trading volume was below normal.

As a result, the 96 basis point (bp) range on the 10-year Treasury yield in March narrowed to 22 bps in April and narrowed further to just 16 bps in May. Market function – as measured by market depth and bid/offer spreads – continued the improvement marked in April. The pace of the Fed’s Treasury purchases tapered further, from an initial $75 billion per day in March to about $10 billion per day at the end of April and then to about $5 billion per day by the end of May. We expect the rate of the Fed’s Treasury purchases will level off soon and continue to provide support for the market over the foreseeable future.

Performance along the curve was uneven. The recent elevated pace of T-bill issuance, easily digested in April, began to push short rates higher in May. The Treasury’s intention to increase its reliance on long maturities, improving prospects for economic reopening and limits to the Fed’s purchases of long Treasuries helped 20- and 30-year Treasury yields to rise as well. The yield curve flattened from three months to five years and steepened beyond five years. Intermediate Treasuries returned +0.18% in May while long Treasuries returned -1.87%.

Inflation expectations continued to rebound from lows reached in March. Breakeven inflation rates rose modestly across the curve, and the Bloomberg Barclays US TIPS Index returned +0.30% in May.

We expect May’s trend to continue into June: low short rates anchored by the Fed policy rate but ongoing upward pressure on long yields.

U.S. Treasury Yield Curve

4/30/20 5/29/2020 Change3 month 0.08% 0.12% 0.04%6 month 0.10% 0.15% 0.05%1 year 0.14% 0.16% 0.02%2 year 0.20% 0.16% -0.04%3 year 0.24% 0.19% -0.05%5 year 0.36% 0.30% -0.06%10 year 0.64% 0.65% 0.01%30 year 1.28% 1.41% 0.13%

Source: Bloomberg

Agency Mortgage-Backed SecuritiesPrepayment speeds slowed down in May, with 30-year Fannie Mae prepays decreasing to 27.5 Constant Prepayment Rate (CPR), 30-year Freddie Mac prepays remaining the same at 28.8 CPR and 30-year Ginnie Mae II prepays increasing to 27 CPR.

During the period, the U.S. Treasury yield curve sold off, with two-year yields increasing 2 bps and 10-year yields rising by 23 bps.

Aggregate delinquency rates have increased the past couple of months. The Freddie 30-year 30-day delinquency rate stayed around 1% across the past few years but has strayed higher the past two months. The aggregate 30-day delinquent rate for 30-year Freddie loans increased to 4.1% in April and then to 5.7% in May. Fannie Mae reported delinquencies in all pools this month, resulting in an aggregate 30-day delinquency rate of 6%. Aggregate 30-year 60-day delinquency rates were 3.1% for Freddie and 3.2% for Fannie.

In May, gross issuance of Agency MBS increased by $18 billion to $254 billion and net issuance increased by $17 billion to $49 billion. The Federal Reserve continued to purchase To Be Announced (TBA)-eligible pools, with gross Agency MBS purchases totaling $688 billion as of May 31.

The MBA US Refinancing Index (seasonally adjusted) steadily decreased and ended the month with the lowest activity since February.

In May, the Bloomberg Barclays US MBS Index total return was 0.12%, with an excess return, measured relative to maturity-matched Treasuries, of 0.03%. The duration of the index extended from 1.28 to 2.15 years over the month.


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Source: eMBS, Barclays Capital. FHLMC Commitment Rate Source: Bloomberg

Agency Mortgage-Backed Securities (cont’d)

Duration of Barclays U.S. MBS Bond Index | As of May 29, 2020

MBA U.S. Refinancing Index | As of May 29, 2020

Source: Bloomberg. Base = 100 on 3/16/1990. Seasonally Adjusted.

5/29/20 3,166.7

MBA Purchase Index | As of May 29, 2020

5/29/20 296.0

Source: Bloomberg. Base = 100 on 1/14/2011. Seasonally Adjusted

Source: Bloomberg. Base = 100 on 1/14/2011. Seasonally Adjusted

5/29/20 2.2

Freddie Mac Commitment Rate - 30 Year | May 28, 2020

5/28/20 3.2

Source: Bloomberg, DoubleLine

% Years

Conditional Prepayment Rates (CPR)2019-2020 June July August September October November December January February March April May

Fannie Mae (FNMA) 12.6 15.9 16.8 18.4 20.2 16.5 16.5 14.5 16.1 22.3 28.0 27.5Ginnie Mae (GNMA) 17.1 20.9 22.3 22.8 24.4 22 22.9 21.3 21.3 24.5 26.2 27.0Freddie Mac (FHLMC) 12.6 16.2 17.2 19.1 20.6 16.7 16.6 14.6 16.4 23.0 28.8 28.8

Bloomberg Barclays U.S. MBS Index 3/31/2020 4/30/2020 5/31/2020 ChangeAverage Dollar Price 106.42 106.95 106.93 -0.02Duration 1.67 1.28 2.15 0.87

Bloomberg Barclays U.S. Index Returns 3/31/2020 4/30/2020 5/31/2020Aggregate -0.59% 1.78% 0.47%MBS 1.06% 0.64% 0.12%Corporate -7.09% 5.24% 1.56%Treasury 2.89% 0.64% -0.25%

Conditional Prepayment Rates (CPR)2019-2020 June July August September October November December January February March April May

Fannie Mae (FNMA) 12.6 15.9 16.8 18.4 20.2 16.5 16.5 14.5 16.1 22.3 28.0 27.5Ginnie Mae (GNMA) 17.1 20.9 22.3 22.8 24.4 22 22.9 21.3 21.3 24.5 26.2 27.0Freddie Mac (FHLMC) 12.6 16.2 17.2 19.1 20.6 16.7 16.6 14.6 16.4 23.0 28.8 28.8

Bloomberg Barclays U.S. MBS Index 3/31/2020 4/30/2020 5/31/2020 ChangeAverage Dollar Price 106.42 106.95 106.93 -0.02Duration 1.67 1.28 2.15 0.87

Bloomberg Barclays U.S. Index Returns 3/31/2020 4/30/2020 5/31/2020Aggregate -0.59% 1.78% 0.47%MBS 1.06% 0.64% 0.12%Corporate -7.09% 5.24% 1.56%Treasury 2.89% 0.64% -0.25%


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Non-Agency Residential Mortgage-Backed SecuritiesNon-Agency residential mortgage-backed securities (RMBS) delivered positive returns in May as the outlook became clearer on the COVID-19 pandemic and the removal of shelter-in-place regimes. Credit spreads continued to tighten notably as broader risk markets improved. The latest remittance data revealed an increase in delinquency rates. The 30-day delinquency rate increased approximately 3% month-over-month (moM) for RMBS 2.0 deals – with the highest delinquency rate coming from non-qualified mortgage (non-QM) loan collateral at 10% MoM. For legacy deals, the 30-day delinquency rates were higher than 2.0 deals, with the highest delinquency rates resulting from prime collateral.

Issuance for the sector began to show strength, with approximately $2.5 billion of new issuance.2 The sector that experienced the strongest new issuance was non-QM and single-family rentals. Total new issuance YTD is now similar to the same period in 2018.

The most recent reading of home prices in March showed an increase of 3.5% year-over-year.3 Increasing 40 bps from the prior month and reached its highest levels since December 2018. Existing-home sales in April decreased 17.8% month-to-month.4 Notably, the median existing-home price increased 2.2% from month-to-month as the inventory of homes dropped 1.3% in that period. However, while inventory is down 19.7% from a year ago, mortgage applications have rebounded to pre-COVID-19 levels.5

The 30-year mortgage rate finished May at 3.15%, down 8 bps from the prior month – reaching an all-time low since the start of the series in 1971.6

Commercial Mortgage-Backed SecuritiesNew-issue private-label commercial mortgage-backed securities (CMBS) picked up in May, with five conduit deals totaling $3.69 billion, two single-asset, single-borrower (SASB) deals totaling $848 million and two commercial real estate (CRE) commercial loan obligations (CLOs) totaling $1.03 billion. All CMBS deals consisted of loans that were originated pre-COVID-19 but experienced delayed marketing due to the pandemic. Despite the resurgence in new-issue activity, new issuance of post-COVID-19-originated collateral is not expected until Q3 when banks restart their origination programs. Issuers continue to highlight the exclusion of lodging/retail assets, limited forbearance requests and a stable collections rate to emphasize higher credit quality. While the outstanding private-label CMBS universe decreased by 0.3% to $578.9 billion in May, it is now approximately 10.9% above the same period in 2019.

The US All-Property Commercial Property Price Index (CPPI) rose 51 bps in April and is up 6.47% year-over-year (YoY) and in line with recent increases. Transaction volume decreased 71% YoY in the month, with many deals already in contract falling through as social distancing and travel restrictions made it increasingly difficult for buyers to perform necessary due diligence. Pricing did not suffer the same fate as transaction volume, as deals that did close were largely under negotiation, and buyers risked losing their deposits if the deals did not close. The apartment sector posted the highest gain, 77 bps, increasing to 10.84% YoY. Industrial prices rose 57 bps, gaining 8.32% YoY. Retail continues to be the laggard, posting a 30 bps gain, increasing 3.1% YoY. While the sector has been one of the hardest hit, with widespread store closures and national retailer bankruptcies, the impacts have yet to flow through as owners have not yet been forced to sell. Several public real estate investment trusts have mentioned that hotel bids have declined 20% to 30% from pre-COVID-19 levels, while other hotel borrowers have started discussions with various lenders regarding forbearance requests. However, week-over-week hotel performance has improved for three consecutive weeks as reopening slowly moves forward. Hotel occupancy at the national level increased to 31.8% (as of May 23), up from 29.5% a week earlier, and the average daily rate increased to $77.5, up from $75.6, resulting in nearly 11% growth in revenue per available room.

CMBS secondary market cash spreads were unidirectional in May, with AAA last cash flows (LCFs) tightening by 17 bps to S+138 and BBB-s tightening by 206 bps to S+766. Both conduit and SASB saw heavy two-way flow throughout the month, with demand outpacing supply, a positive technical tailwind, as investors expect the new-issue market to be muted through the remainder of the year. Heavy buying at the top of the stack from both insurance and money managers pushed some recent conduit LCFs into the 130s, while a mix of real money accounts and family offices were the best buyers of conduit BBB- paper. The conduit BBB- universe remains highly credit specific, trading on fundamental performance, with investors paying up for higher-quality paper with limited hospitality and/or retail exposure. The CMBX market similarly saw a moderate repricing of risk, with AAA 2012-16 reference indices tightening by an average of 4 bps and BBB-s widening by an average of 45 bps.

2 Bloomberg 3 S&P Corelogic Case-Shiller 20-City Home Price Composite4 National Association of Realtors Existing Home Sale Index5 Mortgage Bankers Association Weekly Applications Survey6 Freddie Mac Primary Mortgage Market Survey


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Asset-Backed SecuritiesAsset-backed securities (ABS) generated another month of positive total returns in May as many sectors continued their gradual recovery from the March sell-off. The ICE BofA US Fixed Rate Miscellaneous ABS Index, which tracks the esoteric sectors that bore the brunt of the COVID-19 market volatility, returned 1.56% in May. This marked some moderate outperformance versus the Bloomberg Barclays US Aggregate Bond Index and matched the Bloomberg Barclays US Corporate Bond Index.

As total returns would suggest, ABS spread performance was strong due to increased risk appetite from investors and overall positive market sentiment stemming from governments announcing plans to reopen their economies. Liquid, highly rated sectors such as subprime auto, credit cards and student loans rallied 50 basis points (bps) to 75 bps and ended the month in the 175-275 bps spread range. Less-liquid sectors such as container, railcar and whole business improved 100 bps to 175 bps, leaving month-end trading levels in the 300-375 bps spread range. We continue to observe relatively steep credit curves across many sectors as investors clearly favor senior debt exposures at this time.

Both the primary and secondary markets for ABS were active. Gross monthly ABS issuance totaled $7.9 billion, bringing the total 2020 cumulative issuance to about $70 billion, which is roughly $40 billion less than the comparable 2019 period. Secondary trading volumes were elevated due to some investors taking profits while others scurried to put cash to work and gain exposure to the various surging sectors.

The big news in the ABS market was the bankruptcy filing of Hertz Corporation. The car rental company has been especially hard hit by the COVID-19 pandemic and filed for Chapter 11 reorganization in Delaware on May 22, listing $25.8 billion in assets and $24.4 billion in liabilities. Its ABS debt, which exists in the standard bankruptcy-remote special purpose vehicle format, marked an uptick in secondary market trading and provided some interesting investment opportunities in certain parts of the capital structure.

Investment Grade CreditMay was a risk-on month as investors began to take comfort in the reopening of parts of the global economy along with the Federal Reserve’s purchases of investment grade (IG) and high yield (HY) exchange-traded funds (ETFs) in the U.S. IG credit spreads as measured by the Bloomberg Barclays Credit Index tightened by 27 basis points (bps) to 164 bps for the month, outperforming duration-matched Treasuries by 185 bps.

The total return for the month was 1.63%, bringing the year-to-date (YTD) total return to 2.94%.

The best-performing sectors for the month on a total return basis were oil field services, independent energy, refining, midstream and sovereigns. The worst-performing sectors were utility (other), finance companies, electric, natural gas and leisure.

At the ratings level, BBBs outperformed, posting a total return of 2.50% versus 1.34% for double-As and 0.96% for single-As.

Across the curve, intermediate duration credit outperformed with a total return of 1.68% versus 1.54% for long duration credits and 0.90% for short duration credits.

Dollar-denominated IG new issuance recorded its second-highest month with $286.6 billion of gross issuance and $216.9 billion of net issuance. Gross new supply now stands at $1,190.3 billion for the year, slightly below the $1,297 billion of gross issuance for all of 2019. Industrials led the way this month with $156.6 billion in gross issuance and $127.9 billion in net issuance.

IG funds’ inflows accelerated to $37.5 billion in May.

Performance of Select Barclays Indices Last 12 Months

Total Fixed-Rate Investment Grade Supply As of May 29, 2020

Source: Barclays Live


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CLO New Issuance | September 2012 to May 2020

Last 12 Months Issuance | June 2019 to May 2020

Source: Bloomberg, DoubleLine

$ Billions

Collateralized Loan ObligationsU.S. collateralized loan obligation (CLO) new-issue supply totaled $6 billion across 15 transactions in May. Year-to-date, $27 billion has priced by way of 59 CLOs, a year-over-year decline of roughly 50% in volume and deal count. The month marked no refinancing, reset or reissue transactions.

In the secondary market, the monthly supply of Bids Wanted in Competition (BWIC) declined 8% to $4 billion but remained well above 2019’s monthly average of $3 billion.

CLO fundamentals continued to deteriorate as the wave of COVID-19-related corporate rating downgrades continued, albeit at a slower pace than prior months. As a result, weighted average rating factor (WARF) scores deteriorated further and triple-C asset exposure rose. Median Moody’s triple-C and below exposure stands at 7.4%, compared to a standard threshold of 7.5% for U.S. broadly syndicated loan (BSL) CLOs. In addition, the U.S. loan default rate increased to 3.1%, surpassing the average default rate for the first time since 2010. Increasing defaults and Caa/CCC excess contributed to worsening overcollateralization test cushions month-over-month.

Conversely, CLO market-based metrics, including net asset value (NAV) and market value overcollateralization (MVOC), continued to improve on the heels of the S&P/LSTA Leveraged Loan Price Index, which climbed 3.45%.

CLO spreads were tighter across the ratings stack as prices on underlying loans rose. BB-rated tranche spreads tightened the most on a percentage basis month-over-month despite fundamental concerns.

The JP Morgan CLO Total Return Level Index rose 4.03%, bringing the year-to-date return to -2.07%.

Bank LoansAfter rising by 4.50% in April – the best monthly return since 2009 – the loan market continued to move higher in May, consistent with the broader risk asset rally. For the month, the S&P/LSTA Leveraged Loan Index rose by 3.80% as the weighted average bid price of the market moved from 86.11 to 89.09. Loans are now down 5.68% year-to-date.

As the market grew increasingly comfortable with the emerging recovery from the COVID-19 lockdown, investors reached for riskier names that were trading at greater discounts to par. CCC loans returned 5.26%, far exceeding the 4.60% return of single-B loans and the 2.67% return of BB loans.

All sectors posted positive returns except for Cosmetics-Toiletries, which was down 0.93%. The best-performing sectors were among the most cyclical: Nonferrous Metals-Minerals was up 14.12%, Forest Products was up 13.05% and Oil & Gas was up 11.01%.

The default rate stepped higher, rising from 2.71% to 3.29% on an issuer-count basis. This is the highest default rate since 2010, when the market was in the shadow of the Global Financial Crisis. Rating agency downgrades and market trading levels suggest that the default rate will continue to move higher as companies confront now-unsustainable capital structures.

The primary market remained moribund, with just $9 billion of institutional new issuance. Refinancing activity in the loan market is on pause given the discounted secondary trading levels, and issuers are generally opting to raise money in the high yield market as an alternative. Merger and acquisition transactions are also largely on hold. On the demand side, the collateralized loan obligation (CLO) market showed tentative signs of life, with $6 billion of new vehicles pricing in the month, while retail funds experienced another $1.8 billion of outflows.

We remain somewhat cautious on the asset class in the near term given significant weakness in the economy, but bank loans remain at relatively cheap levels, and we are more constructive on the longer-term outlook. The move lower in the London Interbank Offered Rate (LIBOR) has hurt the relative value of loans compared to other asset classes, but the market still offers return potential given its discounted spread to maturity of L+600.

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High Yield7

High yield corporate bonds (HY) continued to rebound in May, with the Bloomberg Barclays US High Yield Corporate Index returning 4.41% for the month. That compares to a return of -4.73% year-to-date (YTD). Index yield fell 104 basis points (bps) to 7.02% (although spreads remain wider by 183 bps YTD). Index spread tightened 107 bps to 637 bps (+301 bps YTD). High yield benefitted from unprecedented monetary and fiscal policy responses to the COVID-19 pandemic and increasing optimism among investors about the economy reopening. Energy names, in particular, gained with a move higher in oil.

By rating, CCCs outperformed, returning 6.11% versus -15.31% YTD. Bs returned 5.01% versus -5.69% YTD and BBs lagged with a gain of 3.67% versus a return of -0.81% YTD. The three best-performing sectors in May were Oil Field Services, which returned 18.87%; Independent, 12.87%; and Midstream, 10.84%. The worst-performing sectors for the month, while still up, were Health Insurance, with a return of 0.12%; Pharmaceuticals, 0.36%; and Aerospace/Defense, 0.81%.

The par-weighted 12-month default rate ended May at a fresh 10-year high of 4.85%, up 222 bps from the start of the year and 341 (bps) year-over-year (YoY). The energy sector continued to account for the lion’s share of defaults, representing 38% of default volume over the last 12 months for a sector rate of 11.77%. The ex-energy default rate ended the month at 3.74%. For context, the default rate stood at 2.63% at the end of 2019; the 25-year average is 2.90%.

With the swift decline of economic activity and deterioration of many company outlooks, rating agency downgrades continued to far outpace upgrades, within both high yield and between investment grade (IG) and high yield. For May, the high yield upgrade/downgrade ratio stood at 0.1x, with $74.8 billion of downgrades compared to just $7.6 billion of upgrades. This leaves the YTD ratio at 0.2x, with downgrades totaling $541.9 billion compared to $99.8 billion of upgrades. Recall, the upgrade/downgrade ratio ended 2019 at 0.8x, 2018 at 1.3x and 2017 at 1.4x. As for fallen angel volume, May remained very elevated. Fallen angels totaled $21.7 billion, bringing the YTD mark to $189.3 billion, already exceeding the full-year record of $150.2 billion in 2009.

Primary activity was exceptionally strong in May, with gross issuance of $47.3 billion, the sixth-highest monthly total on record. YTD, high yield has priced gross volumes of $156.9 billion, up 40% versus the same period in 2019, with net issuance of $69.6 billion, up a remarkable 78%. Recall, primary activity for 2019 increased 52% gross to $286.6 billion and 28% net of refinancings to $93.7 billion.

Following a record-setting revised inflow of $17.1 billion in April, high yield took in an additional $15.3 billion in May, setting the mark for the second most all time. These figures bring the YTD total to an inflow of $16.9 billion, which compares to inflows of $18.7 billion in full-year 2019, according to Lipper, and an outflow of $46.9 billion in full-year 2018.

CommoditiesIn May, the broad commodity market increased by 16.36% as measured by the S&P GSCI and 4.33% by the Bloomberg Commodity Index.

The energy sector appreciated 35.21% for the month, bouncing back from lows hit in April; WTI crude rallied a whopping 54.97% while Brent crude rallied a strong 38.57%.

The agriculture sector was relatively flat in May, declining 0.21%; the outliers were coffee (-9.41%) and sugar (+5.21%).

Precious metals increased 4.21%, with gold appreciating 2.71% and silver surging 23.55%.

Industrial metals rose 2.93%, with economic bellwether copper increasing 3.44%.

Emerging Markets Fixed IncomeEmerging markets (EM) sovereign and corporate external bonds both posted positive performances in May, with external EM debt primarily benefitting from credit spread tightening.

The JPMorgan Emerging Markets Bond Index (EMBI) Global Diversified credit spread tightened by 95 basis points (bps) across the month and the JPMorgan Corporate Emerging Markets Bond Index (CEMBI) Broad Diversified credit spread tightened 62 bps. The Treasury yield curve steepened with 2-year Treasury yields down 4 bps and 10-year Treasury yields up 1 bp.

Performance across all regions was positive in sovereign and corporate indices as measured by the JPMorgan EMBI Global Diversified and JPMorgan CEMBI Broad Diversified indices. Africa was the best-performing region in both indices; Asia was the worst.

7 Index data from Barclays. Default, new issue, and fallen angel data from J.P. Morgan. Flows data are Lipper as reported by J.P. Morgan.


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-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

JPM Emerging Markets Bond Global Diversified Index (EMBI)

JPM Corporate Emerging Markets Bond Broad Diversified Index (CEMBI)

JPM Government Bond Emerging Markets Broad Diversified Index (GBI-EM)

Emerging Markets Fixed Income (cont’d)

The sovereign index outperformed the corporate index as sovereign spreads tightened more than corporate spreads, and sovereigns outperformed their corporate counterparts across all regions. Relative to the corporate index, the sovereign index also had a higher allocation to Africa and a much lower allocation to Asia. The high yield sub index outperformed the investment grade subindex in both the sovereign and corporate indices.

Risk appetite for 2020 will possibly be largely driven by the effectiveness of measures to contain the COVID-19 outbreak and ease lockdown restrictions. The pandemic will continue to impact global growth and influence fiscal and monetary policies of developed and EM central banks and governments. Other risk-appetite factors include escalating U.S.-China tensions, rising social unrest and the U.S. presidential election in November.

J.P. Morgan Emerging Markets Bond Index Performance June 29, 2019 to May 29, 2020

Source: J.P. Morgan

International SovereignGlobal government bonds, as measured by the FTSE World Government Bond Index, posted positive returns in May. The positive performance was driven by foreign currency appreciation versus the U.S. dollar.

The dollar, as measured by the U.S. Dollar Index (DXY), weakened against the currencies of most of its G-10 peers over the period. Federal Reserve Chairman Jerome Powell signaled that the central bank had additional policy options to support the economy and said negative interest rates were not being considered “for now.” Congress debated the need for further relief measures, with Republicans rejecting a $3 trillion stimulus bill proposed by Democrats. The U.S. Treasury curve moderately steepened in the month.

The euro rose against the dollar. Risk sentiment improved as European countries took steps to reopen their economies, and there was reported progress toward a broader fiscal relief package. The European Council unveiled a 750 billion euro recovery plan, which needs approval from all 27 member economies and the European Parliament. Tensions persisted between southern countries, which favor a joint fiscal response, and northern countries, which oppose it. A ruling from the German Constitutional Court also challenged the legality of previous policy action taken under the European Central Bank’s quantitative easing program.

The Japanese yen depreciated slightly versus the dollar. Data confirmed that the economy had entered a recession with annualized GDP growth contracting for two consecutive quarters. The government approved an additional $1.1 trillion stimulus package, while the Bank of Japan at an emergency meeting unveiled a lending program to support small firms.

Emerging market (EM) currencies rebounded from historically low levels versus the dollar. EM countries benefitted from improved risk sentiment as some countries began to ease lockdown measures, commodity prices recovered, and capital flows stabilized. However, many of these countries are still being challenged by rising COVID-19 cases. Investors remain concerned that many EM countries lack the fiscal and monetary space to offset the economic impact of the pandemic.


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InfrastructureAfter a strong rebound in April, infrastructure debt produced another month of positive total returns in May with a roughly 2.4% gain compared to the Bloomberg Barclays US Aggregate Bond Index return of 0.47% and the Bloomberg Barclays US Credit Index return of 1.63%.

Infrastructure debt in both secured and unsecured form improved throughout the month as leading economic indicators improved and risk appetite returned to many segments of the market. Gains in securitized infrastructure debt were led by global transportation assets, which saw prices rise by about 2% to 4% on the heels of increased economic activity in the U.S. and Asia. Unsecured infrastructure debt such as domestic investment grade corporate bonds continued to improve due to the Federal Reserve’s Secondary Market Corporate Credit Facility (SMCCF). The Fed purchased roughly $1.3 billion in corporate bond exchange-traded funds (ETFs) in May.

The biggest laggards for both secured and unsecured infrastructure debt were telecom and utility-related exposures. These sectors, which enjoyed strong rebounds in previous months due to their relatively low exposure to COVID-19 business disruptions, marked only modest price increases in May while other sectors took the opportunity to catch up.

U.S. Equities In the face of depression-level macroeconomic and corporate earnings data, the S&P 500 Index ended May a mere 4.98% below where it began 2020. For the month, the index returned 4.76%, bringing its total return since the trough of March 23, 2020, to 36.59% and leaving it a mere 9.56% off its pre-COVID-19 all-time high in late February.

May’s much discussed “great rotation” from growth stocks to value was confined to less than two weeks in the middle of the month. For all of May, growth again outperformed value, with the Russell 1000 Growth Index returning 6.71% while the Russell 1000 Value Index returned 3.43%. A global pandemic and deep recession notwithstanding, the Russell 1000 Growth Index closed year-to-date up 5.23% and the Nasdaq Composite Index 6.28%. It is yet to be seen if unlocking the U.S. economy will spur a sustained outperformance by value stocks.

Among global equity markets, the United States continued to outperform in May. The universe of non-U.S. equities, as represented by the 48-nation MSCI All Country World (ACWI) Excluding USA Index, was underperforming in 2020 before the pandemic. Despite declining nearly as much as the S&P 500 in late February and March, this index has rebounded much less than the S&P 500 since March 23. Through the end of May, the MSCI ACWI ex USA Index had lost 14.63% of its value year-to-date.

May brought the conclusion of the first quarter earnings season and a deteriorating earnings picture for the balance of 2020. According to FactSet, S&P 500 earnings fell 14.6% year-over-year in the first quarter, which included only a partial month of the COVID-19 lockdown. Consensus estimates are forecasting second quarter earnings to fall 43.1% below the same period in 2019. Even with an economic recovery in the second half of 2020, full-year earnings are predicted to decline 21.1% from 2019 levels.

Global EquitiesIn May, global equities continued to recover. The Morgan Stanley Capital International All-Country World Index (MSCI ACWI) rose 4.41% during the month. U.S. equities performed in line, with the S&P 500 up 4.76% and the Nasdaq Composite up 6.90%. The Russell 2000 rose 6.51%; the Dow Jones Averages rose 4.66%.

In Europe, equities slightly underperformed the broader market in May. The Eurostoxx 50 rose 4.94%. Core European equities had mixed results, with the DAX of German blue chips returning 6.68% and the French CAC 40 returning 3.38%. On the periphery, Italian stocks, as measured by the FTSE Milano Indice di Borsa (FTSE MIB), rose 3.73% and Spain’s IBEX rose 2.47%. U.K. equities, as measured by the FTSE 100, rose 3.36%.

Asian equities had mixed results as U.S.-China trade tension heated up again over Hong Kong autonomy issues and China’s handling of COVID-19. Japanese equities, as measured by the Nikkei, rose 8.35%. As measured by the Shanghai Stock Exchange Composite Index, Chinese equities declined 0.07%. Hong Kong’s Hang Seng Index declined 6.31%. South Korea’s KOSPI rose 4.21% while Taiwan’s TAIEX declined 0.45%.

Emerging market equities performed worse than the broader market, with the MSCI EM Index returning 0.79%. Indian equities, as measured by MSCI India, were down 2.07%. Brazil’s Ibovespa was up 8.57% while Chilean equities, as measured by MSCI Chile, declined 5.42%. Russian equities, as measured by MSCI Russia, rose 8.74%.

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Definitions/Explanations

AUD - Australian Dollar

ADP Research Institute – ADP generates data-driven discoveries about the world of work and derives economic indicators from these discoveries. Its two primary areas of focus are Labor Market trends, and issues related to People + Performance at work.

Basis Point - A basis point (bps) equals 0.01%.

Bloomberg Agriculture Subindex - Formerly known as Dow Jones-UBS Agriculture Subin-dex (DJUBSAG), the index is a commodity group subindex of the Bloomberg CI. It is com-posed of futures contracts on coffee, corn, cotton, soybeans, soybean oil, soybean meal, sugar and wheat. It reflects the return of underlying commodity futures price movements only and is quoted in USD.

Bloomberg Barclays U.S. Aggregate Bond Index - An index that represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate secu-rities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis.

Bloomberg Barclays U.S. Aggregate Credit Average OAS Index - The Option-Adjusted Spread calculated on the Bloomberg Barclays U.S. Aggregate Bond Index.

Bloomberg Barclays Asset-Backed Securities (ABS) Index - The ABS component of the U.S. Aggregate Index. It includes securities whose value and income payments are derived from and collateralized (‘or backed”) by a specified pool of underlying assets including credit cards, auto loans, etc.

Bloomberg Barclays U.S. Corporate Bond Index - An index that represents the total return measure of the corporates portion of the Barclays U.S. Aggregate Index.

Bloomberg Barclays U.S. Credit Index – The U.S. Credit component of the U.S. Govern-ment/Credit Index. This index consists of publically-issued U.S. corporate and specified for-eign debentures and secured notes that meet the specified maturity, liquidity, and quality requirements. To qualify, bonds must be SEC-registered. The U.S. Credit Index is the same as the former U.S. Corporate Investment Grade Index.

Bloomberg Barclays U.S. MBS Index - An index that measures the performance of invest-ment grade fixed-rate mortgage-backed pass-through securities of the Government-Spon-sored Enterprises (GSEs): Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).

Bloomberg Barclays U.S. High Yield Corporate Index - An index that covers the universe of fixed rate, non-investment grade debt. Eurobonds and debt issuer from countries des-ignated as emerging markets (e.g. Argentina, Brazil, Venezuela, etc.) are excluded, but Ca-nadian and global bonds (SEC registered) of issuers in non-EMG countries are included. Original issue zeros, step-up coupon structures, 144-As and pay-in-kind (PIK, as of October 1, 2009) are also included.

Bloomberg Barclays U.S. Treasury Total Return Unhedged USD Index - Measures U.S. dollar-denominated, fixed-rate, nominal debt issued by the U.S. Treasury. Treasury bills are excluded by the maturity constraint, but are part of a separate Short Treasury Index.

Bloomberg Barclays U.S. Treasury Index - The Index is the U.S. Treasury component of the U.S. Government Index. Public obligations of the U.S. Treasury with a remaining maturity of one year or more.

Bloomberg Commodity Index (BCOM) - An index calculated on an excess return basis that reflects commodity futures price movements. The index rebalances annually weighted 2/3 by trading volume and 1/3 by world production and weight-caps are applied at the commodity, sector and group level for diversification. Roll period typically occurs from 6th-10th business day based on the roll schedule.

Bid Wanted In Competition (BWIC) - A situation where an institutional investor submits its bond bid list to various securities dealers. Dealers are then allowed to make bids on the listed securities. The dealers with the highest bids are subsequently contacted.

Brent Crude Oil - A major trading classification of sweet light crude oil that serves as a benchmark price for purchases of oil worldwide.

Broadly Syndicated Loans (BSL) - Any Loan to an Obligor issued as part of a loan facility with an original loan size (including any first and second lien loans included in the facility) greater than $250,000,000.

CBOE Volatility Index (VIX) - A popular measure of the stock market’s expectation of vol-atility implied by S&P 500 Index options, calculated and published by the Chicago Board Options Exchange (CBOE).

Collateralized Loan Obligation (CLO) - A single security backed by a pool of debt.

CMBX Index - The CMBX is an index, or more accurately a series of indices, designed to reflect the creditworthiness of commercial mortgage-backed securities (CMBS).

Conference Board Leading Economic Index (LEI) - Phenomena, such as the unemploy-ment and new construction rates, used by The Conference Board to predict the financial condition of a particular industry or the economy in general.

Conference Board Consumer Confidence Index (CCI) - Measures how optimistic or pessi-mistic consumers are with respect to the economy in the near future. The Index is based on the concept that if consumers are optimistic, they tend to purchase more goods and services. This increase in spending inevitably stimulates the whole economy.

Conference Board Measure of CEO Confidence - A survey of approximately 100 CEOs in a wide variety of industries that details Chief Executive’s attitudes and expectations regard-ing the overall state of the economy as well as their own industry.

Consumer Price Index (CPI) - A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living; the CPI is one of the most frequently used statistics for identifying periods of inflation or deflation.

Cotation Assistee en Continu (CAC) - A French stock market index that tracks the 40 larg-est French stocks based on the Euronext Paris market capitalization.

Credit Default Swap Index (CDX) - Formerly the Dow Jones CDX, this is a financial instru-ment made up of credit securities that have been issued by North American or emerging markets companies. The CDX is itself a tradable security – a credit market derivative.

Deutscher Aktien Index (DAX) - A blue chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange.

Dot Plot - A simple statistical chart that consists of data points plotted as dots on a graph with x- and y-axes. Dot plots are well known as the method that the U.S. Federal Reserve (Fed) uses to convey its benchmark Federal Funds interest rate outlook at certain Federal Open Market Committee (FOMC) meetings.

Dow Jones Industrial Average (DJIA) - An index that tracks 30 large, publicly-owned com-panies trading on the New York Stock Exchange (NYSE) and the NASDAQ.

EUR - Euro

EUR/USD - The Currency Pair EUR/USD is the shortened term for the euro and U.S. dollar pair or cross for the currencies of the European Union (EU) and the United States (USD). The currency pair indicates how many U.S. dollars (the quote currency) are needed to purchase one euro (the base currency).

Eurostoxx 50 Index - A stock index of Eurozone stocks designed by STOXX, an index provid-er owned by Deutsche Borse Group and SIX group, with the goal of providing a blue-chip representation of Supersector leaders in the Eurozone.

FactSet - Provides computer-based financial data and analysis for financial professionals, including investment managers, hedge funds and investment bankers. It consolidates data on global markets, public and private companies, and equity and fixed-income portfolios.

Federal Family Education Loan Program (FFELP) - A system of private student loans which were subsidized and guaranteed by the United States federal government.

Financial Times Stock Exchange Milano Italia Borsa (FTSE MIB) - The benchmark stock market index for the Borsa Italiana, the Italian national stock exchange, which superseded the MIB-30 in September 2004. The index consists of the 40 most-traded stock classes on the exchange.

Financial Times Stock Exchange 100 (FTSE 100) - A capitalization-weighted index of the 100 most highly capitalized companies traded on the London Stock Exchange.

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The Financial Times Stock Exchange World Government Bond Index (FTSE WGBI- Mea-sures the performance of fixed-rate, local currency, investment-grade sovereign bonds. The WGBI is a widely used benchmark that currently includes sovereign debt from over 20 countries, denominated in a variety of currencies, and has more than 30 years of history available. The WGBI provides a broad benchmark for the global sovereign fixed income market. Sub-indexes are available in any combination of currency, maturity, or rating.

G-10 (Group of 10) - The G10 consists of eleven industrialized nations that meet on an an-nual basis or more frequently, as necessary, to consult each other, debate and cooperate on international financial matters. The member countries are: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States.

FTSEMIB - The benchmark stock market index for the Borsa Italiana, the Italian national stock exchange, which superseded the MIB-30 in September 2004. The index consists of the 40 most-traded stock classes on the exchange.

GBP - British Pound

Gilt - Bonds issued by the U.K., India, and other Commonwealth countries.

Ginnie Mae (GNMA) - Ginnie Mae I is composed of mortgages that pay principal and in-terest on the fifteenth of every month, while the Ginnie Mae II does the same on the twentieth of every month. Another difference between the two pools is the maturity, with Ginnie Mae I having a maximum of 30 years for single-family and 40 years for multifamily, whereas Ginnie Mae II is 30 years max as it doesn’t include multifamily project or con-struction loans.

Hang Seng Index - A free-float capitalization-weighted index of a selection of companies from the Stock Exchange of Hong Kong. The components of the index are divided into four subindices: Commerce and Industry, Finance, Utilities, and Properties.

Ibovespa Index - A gross return index weighted by traded volume and comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The Ibovespa Index has been divided 10 times by a factor of 10 since January 1, 1985.

ICE BofA U.S. Fixed Rate Miscellaneous Asset Backed Securities Index - A subset of ICE BofA U.S. Fixed Rate Asset Backed Securities Index including all asset backed securities col-lateralized by anything other than auto loans, home equity loans, manufactured housing, credit card receivables and utility assets.

IHS Markit Eurozone Manufacturing Purchasing Managers’ Index - A measure of the per-formance of the manufacturing sector derived from a survey of 3,000 manufacturing firms and including national data for Germany, France, Italy, Spain, the Netherlands, Austria, the Republic of Ireland, and Greece. The index is based on five individual indexes: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%), and Stock of Items Purchased (10%), with the Delivery Times index inverted to move in a comparable direction. A reading of above 50 indicates an expansion of the sector, while a reading be-low 50 represents a contraction and 50 indicates no change.

The IHS Markit/CIPS UK Manufacturing PMI® - Based on data compiled from monthly replies to questionnaires sent to purchasing executives in over 600 industrial companies. It is a composite index based on five of the individual indexes with the following weights: New Orders - 0.3, Output - 0.25, Employment - 0.2, Suppliers’ Delivery Times - 0.15, Stock of Items Purchased - 0.1, with the Delivery Times Index inverted so that it moves in a comparable direction.

Indice Bursatil Espanol (IBEX) - The official index of the Spanish Continuous Market. The index is comprised of the 35 most liquid stocks traded on the Continuous market. It is calculated, supervised and published by the Sociedad de Bolsas.

Institute for Supply Management (ISM) Purchasing Managers Index (PMI) - An indicator of the economic health of the manufacturing sector. The PMI is based on five major indi-cators: new orders, inventory levels, production, supplier deliveries and the employment environment.

ISM Non-Manufacturing Index (ISM NMI) - An index made up of data from 400 non-man-ufacturing firms collected by the Institute of Supply Management (ISM).

ISM New Orders Index - The Manufacturing ISM Report On Business is based on data com-piled from monthly replies to questions asked of purchasing and supply executives in over 400 industrial companies. For each of the indicators measured (New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Custom-ers Inventories, Employment, and Prices), this report shows the percentage reporting each response, the net difference between the number of responses in the positive economic direction and the negative economic direction and the diffusion index. Responses are raw data and are never changed. The diffusion index includes the percent of positive respons-es plus one-half of those responding the same (considered positive). The resulting single

index number is then seasonally adjusted to allow for the effects of repetitive intra-year variations resulting primarily from normal differences in weather conditions, various insti-tutional arrangements, and differences attributable to non-moveable holidays. All season-al adjustment factors are supplied by the U.S. Department of Commerce and are subject annually to relatively minor changes when conditions warrant them.

J.P. Morgan CLO TR Level Index - Holistically captures the USD-denominated CLO market, representing over 3000 instruments at a total par value of US $236.1 billion. It allows mar-ket participants to track securitized loan market valuations.

J.P. Morgan Corporate Emerging Markets Bond Broad Diversified Index (CEMBI) -This index is a market capitalization weighted index consisting of U.S.-denominated Emerging Market corporate bonds. It is a liquid global corporate benchmark representing Asia, Latin America, Europe and the Middle East/Africa.

J.P. Morgan Government Bond Emerging Markets Broad Diversified Index (GBI EM) - This index is the first comprehensive, global local Emerging Markets index, and consists of regu-larly traded, liquid fixed-rate, domestic currency government bonds to which international investors can gain exposure.

J.P. Morgan Emerging Markets Bond Global Diversified Index (EMBI) - This index is uniquely-weighted version of the EMBI Global. It limits the weights of those index coun-tries with larger debt stocks by only including specified portions of these countries’ eligible current face amounts of debt outstanding. The countries covered in the EMBI Global Di-versified are identical to those covered by EMBI Global.

JPY - Japanese Yen

Korea Composite Stock Price Index (KOSPI) - The index of all common stocks traded on the Stock Market Division of the Korea Exchange. It is the representative stock market index of South Korea, like the S&P 500 in the United States.

Last Cash Flow (LCF) - The last revenue stream paid to a bond over a given period.

Leveraged Commentary & Data (LCD) - A unit of S&P Global Market Intelligence, LCD pro-vides in-depth coverage of the leveraged loan market through real-time news, analysis, commentary, and proprietary loan data.

LTM - Last Twelve Months

Major Markets - Major markets are defined by Real Capital Analytics as Boston, Chicago, Washington, D.C., Los Angeles, New York City and San Francisco. All markets outside of the Major Markets are Non-Major Markets.

Markit CMBX Index - A synthetic tradable index referencing a basket of 25 commercial mortgage-backed securities.

Mortgage Bankers Association (MBS) Refinancing Index - A weekly measurement that helps predict mortgage activity and loan prepayments based on the number of mortgage refinance applications submitted. When this index is seasonal adjusted, a statistical tech-nique is used that attempts to measure and remove the influences of predictable seasonal patterns (weather, harvests, major holidays, school schedules, etc.) to make it easier to observe the cyclical, underlying trend, and other nonseasonal movements in the series.

Morgan Stanley Capital International All Country World Index (MSCI ACWI) - A market-capitalization-weighted index designed to provide a broad mea-sure of stock performance throughout the world, including both developed and emerging markets.

Mortgage Bankers Association (MBA) Purchase Index - An index that includes all mort-gage applications for purchases of single-family homes. It covers the entire market, both conventional and government loans and all products.

Mortgage Bankers Association (MBA) Refinance Index - An index that covers all mortgage applications to refinance an existing mortgage. It includes conventional and government refinances. SA indicates seasonally adjusted and NSA indicates non-seasonally adjusted.

MSCI Emerging Markets (MSCI EM) - An index that covers 24 Emerging Market countries and is designed to capture the large and mid-cap representation across those countries.

MSCI Russia Index - A free-float capitalization-weighted index used to track the equity market performance of Russian securities on the MICEX Stock Exchange.

NASDAQ Composite - A stock market index of the common stocks and similar securities (e.g. ADRs, tracking stocks, limited partnership interests) listed on the NASDAQ stock mar-ket with over 3,000 components. This index is highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies. Since both U.S. and non-U.S. companies are listed on the NASDAQ stock market, the index is not

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exclusively a U.S. index.

Nasdaq 100 Index - A basket of the 100 largest, most actively traded U.S companies listed on the Nasdaq stock exchange.

NFIB Small Business Optimism Index - The small business optimism index is compiled from a survey that is conducted each month by the National Federation of Independent Business (NFIB) of its members. The index is a composite of 10 seasonally adjusted components based on the following questions: plans to increase employment, plans to make capital outlays, plans to increase inventories, expect economy to improve, expect real sales higher, current inventory, current job openings, expected credit conditions, now a good time to expand, and earnings trend.

Nikkei 225 Index - A price-weighted index comprised of Japan’s top 225 blue-chip companies on the Tokyo Stock Exchange. The Nikkei is equivalent to the Dow Jones Industrial Average Index in the U.S.

On-the-Run Treasuries - The most recently issued U.S. Treasury bonds or notes of a partic-ular maturity. “On-the-run” Treasuries are the opposite of “off-the-run” Treasuries, which refer to Treasury securities that have been issued before the most recent issue and are still outstanding.

Personal Consumption Expenditures (PCE) Core Price Index - Measures price changes in consumer goods and services. Expenditures included in the index are actual U.S. house-hold expenditures. Data that pertains to services, durables and non-durables are measured by the index.

Qualified Mortgage (QM) - A qualified mortgage is a mortgage that meets certain require-ments for lender protection and secondary market trading under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Russell 1000 Growth Index - An index that measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

Russell 1000 Value Index - An index that measures the performance of the large-cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values.

Russell 2000 Index - A subset of the Russell 3000 Index representing approximately 10% of the total market capitalization and measuring the performance of the small-cap segment of the U.S. equity universe.

S&P CoreLogic Case-Shiller National Home Price Index - An index that tracks the value of single-family housing within the United States. The index is a composite of single-family home price indices for the nine U.S. Census divisions.

S&P CoreLogic Case-Shiller 20-City Composite Home Price NSA Index - Seeks to measures the value of residential real estate in 20 major U.S. metropolitan areas: Atlanta, Boston, Charlotte, Chicago, Cleveland, Dallas, Denver, Detroit, Las Vegas, Los Angeles, Miami, Min-neapolis, New York, Phoenix, Portland, San Diego, San Francisco, Seattle, Tampa and Wash-ington, D.C.

S&P/LSTA Leveraged Loan Index - An index designed to track the market-weighted perfor-mance of institutional leveraged loans based on the market weightings, spreads and interest payments.

S&P/LSTA Leveraged Loan 100 Index - An index designed to track the market-weighted per-formance of the 100 largest institutional leveraged loans based on the market weightings, spreads and interest payments.

S&P Goldman Sachs Commodity Index (GSCI) - Standard & Poor’s Goldman Sachs Com-modity Index, or GSCI, is a composite index of commodity sector returns which represents a broadly diversified, unleveraged, long-only position in commodity futures.

S&P 500 Index - Standard & Poor’s U.S. 500 Index, a capitalized-weighted index of 500 stocks.

S&P Global Market Intelligence - A provider of multi-asset class and real-time data, re-search, news and analytics to institutional investors, investment and commercial banks, in-vestment advisors and wealth managers, corporations, and universities.

Secured Overnight Financing Rate (SOFR) - An influential interest rate that banks use to price U.S. dollar-denominated derivatives and loans. The daily SOFR is based on transactions in the Treasury repurchase market, where investors offer banks overnight loans backed by their bond assets.

Shanghai Composite Index - A capitalization-weighted index that tracks the daily perfor-mance of all A-shares and B-shares listed on the Shanghai Stock Exchange. The index was developed on December 19, 1990 with a base value of 100.

Spread - The difference between yields on differing debt instruments, calculated by deduct-ing the yield of one instrument from another. The higher the yield spread, the greater the difference between the yields offered by each instrument. The spread can be measured be-tween debt instruments of differing maturities, credit ratings and risk.

TAIEX Index - A stock market index for the companies traded on the Taiwan Stock Exchange. TAIEX covers all of the listed stocks excluding preferred stocks, full-delivery stocks and newly listed stocks, which are listed for less than one calendar month.

Trade Reporting and Compliance Engine (TRACE) - The Trade Reporting and Compliance Engine is the FINRA-developed vehicle that facilitates the mandatory reporting of over-the-counter secondary market transactions in eligible fixed income securities.

U-3 Unemployment Rate - The U.S. Bureau of Labor Statistics U-3 unemployment rate is the officially recognized rate of unemployment, measuring the number of unemployed people as a percentage of the labor force.

U.S. National All-Property Price Index – A transaction-based RCA Commercial Property Price Index (CPPI) that measures commercial real estate price movement using repeat-sales re-gression methodology. One of over 350 indices which provide direct comparability across markets and property types in 15 countries, this Index focuses on the United States.

U.S. Dollar Index (DXY) - A weighted geometric mean of the United States dollar’s value relative to a basket of 6 major foreign currencies, including the Euro, Japanese yen, Pound sterling, Canadian dollar, Swedish krona and Swiss franc.

U.S. Treasuries (UST) - Commonly used for references to the Treasury debt that the U.S. issues.

Uniform Mortgage-Backed Securities (UMBS) - Single-class securities backed by mortgage loans purchased by either Freddie Mac or Fannie Mae.

University of Michigan Consumer Sentiment Index - The Surveys of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted through-out the month by telephone. The minimum monthly change required for significance at the 95-percent level in the Sentiment Index is 4.8 points; for Current and Expectations Index the minimum is 6 points.

USD/JPY - The Currency Pair USD/JPY is the shortened term for the yen and U.S. dollar pair or cross for the currencies of Japan (JPY) and the United States (USD). The currency pair indicates how many Japanese yen (the quote currency) are needed to purchase one U.S. dollar (the base currency).

Weighted Average Cost of Capital (WACC) - The weighted average cost of capital (WACC) is a calculation of a firm’s cost of capital in which each category of capital is proportionate-ly weighted. All sources of capital, including common stock, preferred stock, bonds, and any other long-term debt, are included in a WACC calculation.

WAL (Weighted Average Life) - The average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding.

World Interest Rate Probabilities WIRP (WIRP) - Allows you to analyze the probabilities of various interest rate level outcomes as implied by the futures, options, and OIS markets, so you can quantify to what extent the markets are “pricing in” future central bank interest rate changes.

WTI - West Text Intermediate Crude Oil Front Month Futures Contract

Z-Score - A numerical measurement used in statistics of a value’s relationship to the mean (average) of a group of values, measured in terms of standard deviations from the mean. If a Z-score is 0, it indicates that the data point’s score is identical to the mean score. A Z-score of 1.0 would indicate a value that is one standard deviation from the mean. Z-scores may be positive or negative, with a positive value indicating the score is above the mean and a negative score indicating it is below the mean.


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Important Information Regarding This MaterialIssue selection processes and tools illustrated throughout this presentation are samples and may be modified periodically. These are not the only tools used by the investment teams, are extremely sophisticated, may not always produce the intended results and are not intended for use by non-professionals.

DoubleLine has no obligation to provide revised assessments in the event of changed circumstances. While we have gathered this information from sources believed to be reliable, DoubleLine cannot guarantee the accuracy of the infor-mation provided. Securities discussed are not recommendations and are present-ed as examples of issue selection or portfolio management processes. They have been picked for comparison or illustration purposes only. No security presented within is either offered for sale or purchase. DoubleLine reserves the right to change its investment perspective and outlook without notice as market condi-tions dictate or as additional information becomes available. This material may include statements that constitute “forward-looking statements” under the U.S. securities laws. Forward-looking statements include, among other things, projec-tions, estimates, and information about possible or future results related to a cli-ent’s account, or market or regulatory developments.

Important Information Regarding Risk FactorsInvestment strategies may not achieve the desired results due to implementa-tion lag, other timing factors, portfolio management decision-making, economic or market conditions or other unanticipated factors. The views and forecasts ex-pressed in this material are as of the date indicated, are subject to change without notice, may not come to pass and do not represent a recommendation or offer of any particular security, strategy, or investment. All investments involve risks. Please request a copy of DoubleLine’s Form ADV Part 2A to review the material risks involved in DoubleLine’s strategies. Past performance is no guarantee of fu-ture results.

Important Information Regarding DoubleLineIn preparing the client reports (and in managing the portfolios), DoubleLine and its vendors price separate account portfolio securities using various sources, includ-ing independent pricing services and fair value processes such as benchmarking.

To receive a copy of DoubleLine’s current Form ADV (which contains important additional disclosure information, including risk disclosures), a copy of Double-Line’s proxy voting policies and procedures, or to obtain additional information on DoubleLine’s proxy voting decisions, please contact DoubleLine’s Client Services.

Important Information Regarding DoubleLine’s Investment StyleDoubleLine seeks to maximize investment results consistent with our interpreta-tion of client guidelines and investment mandate. While DoubleLine seeks to max-imize returns for our clients consistent with guidelines, DoubleLine cannot guaran-tee that DoubleLine will outperform a client’s specified benchmark or the market or that DoubleLine’s risk management techniques will successfully mitigate losses. Additionally, the nature of portfolio diversification implies that certain holdings and sectors in a client’s portfolio may be rising in price while others are falling or that some issues and sectors are outperforming while others are underperform-ing. Such out or underperformance can be the result of many factors, such as, but not limited to, duration/interest rate exposure, yield curve exposure, bond sector exposure, or news or rumors specific to a single name.

DoubleLine is an active manager and will adjust the composition of clients’ portfo-lios consistent with our investment team’s judgment concerning market conditions and any particular sector or security. The construction of DoubleLine portfolios may differ substantially from the construction of any of a variety of market indices. As such, a DoubleLine portfolio has the potential to underperform or outperform a bond market index. Since markets can remain inefficiently priced for long periods, DoubleLine’s performance is properly assessed over a full multi-year market cycle.

Important Information Regarding Client ResponsibilitiesClients are requested to carefully review all portfolio holdings and strategies, in-cluding by comparison of the custodial statement to any statements received from DoubleLine. Clients should promptly inform DoubleLine of any potential or per-ceived policy or guideline inconsistencies. In particular, DoubleLine understands that guideline enabling language is subject to interpretation and DoubleLine strongly encourages clients to express any contrasting interpretation as soon as practical. Clients are also requested to notify DoubleLine of any updates to cli-ent’s information, such as, but not limited to, adding affiliates (including broker dealer affiliates), issuing additional securities, name changes, mergers or other alterations to Client’s legal structure.

DoubleLine Group is not an investment adviser registered with the Securities and Exchange Commission (SEC).

DoubleLine® is a registered trademark of DoubleLine Capital LP.

© 2020 DoubleLine Capital LP

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For Investors in ChileIf any products are offered within Chile, they will be offered and sold only pursuant to General Rule 336 of the SVS, an exemption to the registration requirements, or in circumstances which do not constitute a public offer of securities in Chile within the meaning of Article 4 of the Chilean Law No. 18,045 on Securities Market.

This communication is addressed only to “Qualified Investors” (as defined in SVS General Rule No. 216).

Si algunos valores son ofrecidos dentro de Chile, serán ofrecidos y colocados sólo de acuerdo a la Norma de Carácter General 336 de la SVS, una excepción a la ob-ligación de registro, o en circunstancias que no constituyan una oferta pública de valores en Chile según lo definido por el Artículo 4 de la Ley 18.045 de Mercado de Valores de Chile.

Esta comunicación está dirigida a “Inversionistas Calificados” (según se define en la Norma de Carácter General N° 216 de la SVS).

For Investors in PeruAll content in this document is for information or general use only. The informa-tion contained in this document is referential and may not be construed as an offer, invitation or recommendation, nor should be taken as a basis to take (or stop taking) any decision.

This neither is an offer or an invitation to offer nor authorizes such sales or invita-tions in places where such offers or invitations are contrary to the corresponding applicable.

This communication is not intended for any person who is not qualified as an in-stitutional investor, in accordance with provisions set forth in SMV Resolution Nº 021-2013-SMV-01, and as subsequently amended. No legal, financial, tax or any other kind of advice is hereby being provided.

Todo lo contenido en este documento es sólo para fines informativos o de uso general. La información contenida en este documento es referencial y no puede interpretarse como una oferta, invitación o recomendación, ni debe considerarse como fundamento para tomar (o dejar de tomar) alguna decisión.

La presente no constituye una oferta ni una invitación a ofertar ni autoriza tales ventas o invitaciones en los lugares donde tales ofertas o invitaciones sean con-trarias a las respectivas leyes aplicables.

Esta comunicación no está dirigida a ninguna persona que no califique como un inversionista institucional, de conformidad con lo dispuesto en la Resolución SMV Nº 021-2013-SMV-01, así como pueda ser modificada en el futuro. Por medio de la presente comunicación no se le está proveyendo de consejo legal, financiero, tributario o de cualquier otro tipo.

For Investors in Latin America and the Middle EastThis material has not been registered with, or approved or passed on in any way, by any regulatory body or authority in any jurisdiction. This material is for the information of prospective investors only and nothing in this material is intended to endorse or recommend a particular course of action. By receiving this material, the person or entity to whom it has been issued understands, acknowledges and agrees that neither this material nor the contents therein shall be deemed as an offer to sell or a solicitation of an offer to buy, or a recommendation of any security or any other product, strategy or service by DoubleLine or any other third party.

For Investors in Japan (Discretionary Investment Manager (DIM) & Non- Discre-tionary Investment Manager (Non-DIM)DoubleLine Investment Management Asia Ltd. (“DoubleLine Asia”) is registered with the Kanto Local Finance Bureau as an Investment Advisory and Agency (“IAA”) operator in Japan (Registration No. 2986). However, DoubleLine Asia only conducts the agency business under its IAA registration. Under its agency busi-ness, DoubleLine Asia is authorized to intermediate in the execution of investment advisory and investment management contracts between its affiliates which are registered investment managers outside of Japan (“Foreign Investment Manag-ers”) and discretionary investment managers and trust banks conducting the in-vestment management business (together the “Japan DIMs”) registered in Japan.

DoubleLine Asia is not permitted to market or solicit any securities or other invest-ment products, nor is it able to provide any direct investment advisory or invest-ment management services in Japan or elsewhere.

While discussions with Japan DIMs may involve its agency business of interme-diating investment advisory and investment management arrangements, all dis-cussions with persons other than Japan DIMs are necessarily limited to general information about DoubleLine Asia and its affiliates and nothing herein should be read to suggest a solicitation of products or services inconsistent with such regu-latory status.

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