"Consumer Confidence and Fixed Income Investments"
Consumer Confidence and Fixed Income Investments 11988 El Camino Real ❘ Suite 500 ❘ P.O. Box 919048 ❘ San Diego, CA 92191-9048 ❘ 858.755.0239 ❘ 800.237.7119 ❘ Fax 858.755.0916 ❘ email@example.com ❘ www.brandes.com General sentiment on the economy may fall to levels reflecting extreme pessimism, or rise to levels indicating excessive optimism. The swings in consumer confidence levels, shown in the chart below, illustrate the historical extremes. Bond investors may experience similar swings in confidence, tempting them to deviate from disciplined investing strategies. The chart below demonstrates how credit spreads have tended to widen when consumer confidence has been low, compensating investors in corporate bonds with higher yields.1 Conversely, when consumer confidence has been high, yields have tended to narrow, and corporate bond investors may have received lower income payments. Investors who eliminate their exposure to corporate bonds when confidence is at a low point will not receive the historically higher yields provided by corporate bonds at that time, and may not enjoy subsequent appreciation for bonds if yield spreads compress as consumer confidence recovers. With yield spreads and consumer confidence at extreme levels, we believe the current environment offers exceptional opportunities for long-term fixed income investors. Conference Board Monthly Survey and Credit Spread 12/31/68 – 12/31/08 160 7 Consumer Conﬁdence Yield Spread 6 140 5 Conﬁdence Level Credit Spread 120 4 100 3 80 2 60 1 40 0 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 Source: FactSet, as of 12/31/08. 1 Credit spread is calculated as Moody’s Baa-rated long-term yield minus the yield on the 10-Year U.S. Treasury Bond. The Conference Board Consumer Confidence Survey reflects prevailing business conditions and likely developments for the months ahead. This monthly report details consumer attitudes and buying intentions, with data available by age, income, and region. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by NFO Research, Inc. The information provided in this material should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any security transactions, holdings, or sectors discussed were or will be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance discussed herein. Unlike bonds issued or guaranteed by the U.S. federal government or its agencies, stocks and other bonds are not backed by the full faith and credit of the United States. Stock and bond prices will experience market fluctuations. Please note that the value of government securities and bonds in general have an inverse relationship to interest rates. Bonds carry the risk of default, or the risk that an issuer will be unable to make income or principal payment. There is no assurance that private guarantors or insurers will meet their obligations. The credit quality of the investments in the portfolio is no guarantee of the safety or stability of the portfolio. Past performance is not a guarantee of future results. No investment strategy can assure a profit or protect against loss. The foregoing reflects the thoughts and opinions of Brandes Investment Partners® exclusively and is subject to change without notice. Brandes Investment Partners® is a registered trademark of Brandes Investment Partners, L.P. in the United States and Canada. 0209