The current global economic environment of low-to-negative interest rates in major economies poses a challenge to institutional investors looking to squeeze the most out of their fixed income portfolios. The economic conditions in the first five months of 2016 have added to the sense that interest rates globally are likely to stay lower for longer. Even in the United States, which is considered further along the economic cycle than other developed economies, the timing of any move towards interest rate normalisation remains uncertain.

Traditionally, many institutional investors have employed a strategic asset mix that is based on, or at least resembles, a common core benchmark, such as the Barclays Global Aggregate Bond Index. However, the current situation demonstrates how investors taking this approach may be left especially vulnerable to interest-rate risk, when low interest rates combine with the long duration characteristics of several common core benchmarks.

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