525,600 minutes is not only the opening line from my favorite song in my favorite Broadway musical, Rent, it is also the length of time (one year) since I last worked in our physical office at 100 Federal Street. Why did I include the word “physical” in that sentence? More on that later. As many of us approach the anniversaries of our last working days in formal office settings, let’s take a few moments to reflect back. What a year, 525,600 moments so dear...
How do you measure a year? Let’s examine some common bond market metrics. The 10 Year US Treasury Note yield was 1.45% as of 3/1/2021, relative to 1.10% a year ago. Up 35bps, manageable, and we generally cheer for higher rates because coupon income, not increases in bond prices, is a larger component of total return for longer–term investors. Average US investment grade corporate bond spreads were 90bps as of 3/1/2021, compared to 126bps a year ago. 36bps tighter, year-over-year, a positive for prices and returns (all else equal), boding well for fixed income investors. So it sounds like the past 12 months were generally solid, steady-as-she-goes moments for bond portfolios? (My clients are probably tired of the joke, “If you went to sleep a year ago and woke up today, you’d think nothing happened!”) Not so fast.
As we all remember, volatility ensued in March 2020. Buoyed by fears of a prolonged COVID-driven economic downturn, risk assets sold-off and the average investment grade corporate bond spread hit its wide of 373bps on 3/23/2020. Some clients needed liquidity during the midst of the volatility and we delivered, but tides turned and assets flowed back into safe-haven fixed income. Bond yields declined; the 10-year hit a low of 0.508% on 8/4/2020.
We believe the unexpected events of the past year were a veritable case study in the merits of duration-neutral, active fixed income portfolio management. We had the opportunity to add high–quality spread product at the cheapest levels since the Global Financial Crisis, and managers who were able to provide liquidity to the market and allocate more to the corporate and securitized sectors were able to significantly outperform passively managed portfolios. Now, with yields a bit more attractive and spreads back to where they started and then some, the yield curve (2s/10s) is 100bps steeper; across the US, vaccination programs are underway, and market participants and citizens are calling for an economic and social rebound.
Let’s celebrate, remember a year in a life of friends (and colleagues!). This brings me to my opening point about IR+M’s physical office. Despite the fact that all 179 of us haven’t worked together in the same physical office location for the past year, we’ve stayed connected in ways that I never could have imagined in 2019, via our virtual office. A huge shout-out goes to our Enterprise Solutions (ES) team, who quickly fast-tracked the roll-out of video conferencing capabilities, and patiently trained us all, one-by-one, on the virtues of a mesh WiFi home router system, internet speed, good lighting, and proper camera placement (“It’s all about the angles, Angela!”). ES is now preparing us to host hybrid meetings in the future, where participants can join via video and in-person, promoting efficiency and larger groups of attendees.
We’ve loved bringing our Investment Team to more meetings than ever. Our pre-COVID “Just Show Up” mantra required a delicate balancing act between investors staying in front of their computer screens versus attending meetings and new business pitches, a challenge that is irrelevant in our virtual office; they can easily pivot between watching markets and hopping on a video call to meet with clients, consultants, and prospects.
Microsoft (MS) Teams has allowed us to communicate better than ever internally, and we’ve worked together to maintain solid performance and launch new products, like our Core Bond and Muni ESG Strategies. Through MS Teams video meetings, we’ve welcomed new clients, teammates, babies, pets, and significant others, engaged in virtual calorie-neutral events (e.g. spin class followed by drinks) with people in other states, and celebrated multi-decade IR+M colleague anniversaries. We used to pride ourselves on our sole physical office location where we “met by swivel chair,” but it’s been truly amazing to see the firm, our colleagues, and our culture grow and flourish from 179 individual locations, all within our virtual office.
Remember the love. On a personal note, the last year has afforded me much-needed space to “hit the pause button.” Years of late nights, travel, and hard work had taken a toll on my pre-COVID personal life. Over the past 525,600 minutes, I’ve reveled in the extra moments spent with my eight- and five-year old girls and my new beau (aka ex-husband). Parenting during COVID hasn’t always been a cake walk, but being home for meals, school drop-offs and pick-ups, bedtimes, lost teeth, story time (all seven Harry Potter books!), 2,000-piece puzzles, and birthdays has filled my bucket higher than ever before. As we look ahead and plan for a return to our physical office and travel, I’m excited to retain this newfound work/life balance while reconnecting with clients and industry partners in–person, to foster “seasons of love” for years to come.
Sources: Bloomberg Barclays. Data as of 03/01/21. The above examples are for illustrative purposes only. Actual results may differ. Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. The views contained in this report are those of IR+M and are based on information obtained by IR+M from sources that are believed to be reliable. This report is for informational purposes only and is not intended to provide specific advice, recommendations for, or projected returns of any particular IR+M product. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Income Research & Management.