WHITE PAPERS

WHITE PAPERS

After the Storm: Next Steps for the Repo Market

After the Storm: Next Steps for the Repo Market
PGIM Fixed Income    PDF Opens in a new window

One of the striking features of the recent stress in the U.S. repurchase (repo) market is the culmination of factors—including developments in monetary policy, banking regulations, Treasury issuance, and corporate tax payments—that contributed to the pressure. While these factors may result in some continued bifurcation in short-term money market rates over the medium term, the mechanics of monetary policy will likely address and mitigate the recently emerged pressure in the near term.

Capturing the Opportunity of Constraints

Capturing the Opportunity of Constraints
PGIM Fixed Income    PDF Opens in a new window

Fixed income markets contain a high proportion of investors whose goal of identifying the most attractive relative value is subverted by jurisdictional or self-imposed rules, regulations, and constraints, or is superseded by other non-economic objectives, such as accounting conventions. This, in turn, creates opportunities for total return, multi-sector fixed income investors willing to consider broad investment guidelines and greater degrees of portfolio management freedom. In this paper, PGIM Fixed Income lays out:

  1. the fixed income market segmentation we observe and the resultant high dispersion in risk-adjusted reward;
  2. principles for identifying relative value and pitfalls to avoid; and
  3. an outline of our portfolio construction approach for building multi-sector portfolios.

Challenges and Solutions to the Cost of Investing in Emerging Markets Local Debt

Challenges and Solutions to the Cost of Investing in Emerging Markets Local Debt
PGIM Fixed Income   PDF Opens in a new window

In an environment of expanding negative rate securities across developed markets, emerging markets local bonds (EMLBs) continue to present attractive investment opportunities. Yet, unless active measures are taken, investing in EMLBs can incur extra transaction costs that reduce alpha generation. In this paper, PGIM Fixed Income explains the transaction costs associated with EMLBs and discusses possible solutions to help mitigate and, in some cases, eliminate these costs in order to maximize client portfolio returns.

The Potential Implications of Investing in Coal-Heavy Utilities

The Potential Implications of Investing in Coal-Heavy Utilities
PGIM Fixed Income   PDF Opens in a new window

Several factors—including evolving regulations, shifting dynamics across commodity markets, declining costs of renewable electrical generation, and mounting environmental concerns—continue to affect the economics of coal-fueled electrical generation. With these factors in mind, PGIM Fixed Income’s paper addresses a primary investment-related question: Do (or will) utility bonds issued by more coal-heavy or carbon-intensive utilities trade at a discount? Or stated differently, what are the implications from the relationship between bonds issued by coal-heavy utilities and those issued by utilities with less reliance on coal?

India—Ready to Step into China’s Shoes?

India—Ready to Step into China’s Shoes?
PGIM Fixed Income   PDF Opens in a new window

India may be well placed to replicate China’s rise over the last three decades, but the chance of success rests on India being able to drastically increase domestic savings and economy-wide productivity. The current situation, with China losing cost competitiveness and being in the crosshairs of a trade conflict, offers an opening for India. It is now important for India to focus on essential reforms and its vision to shift to an investment- and export-led growth model.

The Fed’s About-Face Complete Amid Dissent

The Fed’s About-Face Complete Amid Dissent
PGIM Fixed Income    PDF Opens in a new window

The Fed cut its target fed funds rate by 25 bps to a target range of 2.0%-2.25% at the policy meeting that ended on July 31, marking its first interest rate cut since 2008. The Fed also announced that it is pulling the end date of its balance sheet run-off forward by two months to August 2019. Fed officials have been somewhat divided over whether a rate cut is necessary at this point in the cycle, and, indeed, two FOMC voters (Esther George and Eric Rosengren) dissented, preferring instead to keep the fed funds rate unchanged. All said, the markets were disappointed with the Fed’s 25-bp cut. Short-term yields rose amid reduced expectations for additional cuts. However, long rates declined, suggesting that the less-dovish-than-expected Fed could dampen inflation and growth over the long run. The less-dovish adjustment also pushed the U.S. dollar up, and the joint impact of a higher dollar and reduced-growth prospects pushed equity prices down. Read the full commentary from PGIM Fixed Income.

Q&A: Where Are the Best Growth Opportunities Today?

Q&A: Where Are the Best Growth Opportunities Today?
Jennison Associates   PDF Opens in a new window

With slowing global economic growth, it’s becoming more difficult to find high-growth companies. Additionally, there are lower market return expectations at this point in the economic cycle. The combination makes it more challenging for investors to find attractive growth opportunities to meet long-term investment goals. In this Q&A, Mark Baribeau, CFA, head of global equity at Jennison Associates, shares his views on why now is a good time for selective growth assets and where he sees the most compelling secular opportunities.

U.S. Rates: Low for Long and Likely Positive

U.S. Rates: Low for Long and Likely Positive
QMA   PDF Opens in a new window

Given our long-standing “low for long” thesis for the global bond markets, PGIM Fixed Income expects U.S. rates to fluctuate around current levels and ultimately remain positive, given some key distinctions between the U.S. and the growing list of negative-yielding countries. Our assessment starts at the front-end of the curve and whether the Federal Reserve could resort to a nominally negative fed funds rate. We then look at factors affecting longer-term rates.

Turkey—A Short-Term Reprieve Amidst Persistent Uncertainties

Turkey—A Short-Term Reprieve Amidst Persistent Uncertainties
PGIM Fixed Income    PDF Opens in a new window

Turkey’s economic crisis erupted one year ago with a calamitous depreciation of the Turkish lira. PGIM Fixed Income recently returned to Turkey to take stock and gauge the outlook. This paper draws heavily on the insights gleaned from that trip.

Argentina: 5 Key Questions

Argentina: 5 Key Questions
PGIM Fixed Income    PDF Opens in a new window

The unexpected and shocking defeat of President Macri and his center-right party in the Argentine primaries on August 11 has led to a significant repricing of Argentina assets. In addition to PGIM Fixed Income providing revised macro forecasts, given its base case that the Fernandez ticket wins the October election, it provides perspective on five key questions regarding how events may unfold in Argentina going forward.

Broad-Based ECB Easing Package in the Works

Broad-Based ECB Easing Package in the Works
PGIM Fixed Income   PDF Opens in a new window

Those who were looking for reassurance that a broad-based policy easing by the European Central Bank (ECB) is in the works were not disappointed. The ECB took several critical steps towards a package of easing measures, likely to be initiated in September 2019. Besides adopting a formal easing bias, the Governing Council tasked committees to examine broad-based policy options, including the design of a tiering system and options on the size and composition of possibly renewed asset purchases. In sum, a first rate cut in September combined with tiering is all but a foregone conclusion. A decision on asset purchases is now highly likely, but it may come only in December, depending on the degree of the economic slowdown and how quickly a consensus can be forged.

Value vs. Growth: The New Bubble

Value vs. Growth: The New Bubble
QMA    PDF Opens in a new window

QMA’s latest paper, “Value vs. Growth: The New Bubble,” examines the poor performance of value from multiple angles. We establish a baseline for normal value behavior and demonstrate through return decomposition, among other measures, why we believe that value is poised to pay off. Dislocations are meaningfully above average, as are the expected returns to value. We also find support from corporate insiders (company management and boards of directors) that there are meaningful opportunities in value. Recent dynamics reflect investor overreaction and price action. With valuation spreads (the difference between valuation of cheap and expensive stocks) at extreme levels, dislocations are meaningfully above average, as are the expected returns to value. We expect the resulting bounce-back to represent some of the largest investment opportunities of the last decade—if not the last 25 years.

Investing Against the Possibility of Regime Change

Investing Against the Possibility of Regime Change
QMA    PDF Opens in a new window

Following is a letter from QMA’s CEO Andrew Dyson that takes a closer look at a secular shift in the investment or economic environment that prevents investors from extrapolating from the past as they attempt to forecast the outcomes of their investment strategies. The challenge for investors is to differentiate the structural shifts inherent in regime change from shorter-lived and more superficial cyclical changes.

On the Markets

On the Markets
PGIM Investments    PDF Opens in a new window

Our quarterly chart series provides a data-centric view of key macroeconomic variables, market performance, and major trends in the equity, fixed income, and real assets markets.

Weekly View from the Desk

Weekly View from the Desk
PGIM Fixed Income    PDF Opens in a new window

Access our latest market overview on the state of the markets, the economy, and current events that are affecting the investment world.

Some content is provided by the Strategic Investment Research Group (SIRG), a unit of PGIM Investments, LLC, and a research unit of Prudential Financial. SIRG provides research, analysis and due diligence on investment management firms and the vehicles and strategies they offer.

Consider a fund's investment objectives, risks, charges and expenses carefully before investing. The prospectus and the summary prospectus contain this and other information about the fund. Contact your financial professional for a prospectus and the summary prospectus. Read them carefully before investing.

An investment in our money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the funds seek to preserve the value of your clients investment at $1.00 per share, it is possible to lose money by investing in the funds.

Mutual fund investing involves risk. Some mutual funds have more risk than others. The investment return and principal value will fluctuate and investor's shares when sold may be worth more or less than the original cost. Fixed income investments are subject to interest rate risk, and their value will decline as interest rates rise. Asset allocation and diversification do not assure a profit or protect against loss in declining markets. There is no guarantee a Fund's objectives will be achieved. The risks associated with each fund are explained more fully in each fund's respective prospectus. Your clients should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation.

This material is being provided for informational or educational purposes only and does not take into account the investment objectives or financial situation of any client or prospective clients. The information is not intended as investment advice and is not a recommendation about managing or investing your retirement savings. Clients seeking information regarding their particular investment needs should contact a financial professional.

Investment products are distributed by Prudential Investment Management Services LLC, a Prudential Financial company, member SIPC. Separately Managed Accounts are offered through our affiliates. Jennison Associates and PGIM, Inc. (PGIM) are registered investment advisors and Prudential Financial companies. QMA is the primary business name of QMA LLC, a wholly owned subsidiary of PGIM. PGIM Fixed Income and PGIM Real Estate, are units of PGIM. © 2019 Prudential Financial, Inc. and its related entities. Jennison Associates, Jennison, PGIM Real Estate, PGIM and the PGIM logo are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide.

Prudential Financial, Inc. of the United States is not affiliated with Prudential plc. which is headquartered in the United Kingdom.

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For compliance use only 1004055-00004-00 Ed. 07/2019