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Index managers are dealing with negative yields 

September 6, 2016

Barry B. Burr, Pension & Investments

Negative yields have upended non-U.S. and global fixed-income indexes, although they haven't stopped bond markets from rallying.

Fixed-income index fund managers hold negative-yielding securities “to an extent consistent with the proportion of negatively yielding securities in the index,” said David Blake, London-based director of international fixed income, Northern Trust Asset Management, which manages $398 billion in fixed-income assets, in an e-mail.

“From a benchmark perspective, approximately 25% by market value of the Barclays Global Aggregate index presently consists of negative-yield issues,” Mr. Blake said.

“In contrast, virtually none of the Barclays U.S. Aggregate index consists of negative-yield securities,” he said.

Thierry Adant, senior investment consultant, Willis Towers Watson PLC, New York, said, “Global aggregate or global sovereign bonds or global corporate bond index funds will have significant exposure to European markets, anywhere from 20% to 30%, and I would suspect a good amount of those assets will be either at zero or negative yields. The way those indexes are constructed they just include all the instruments in the universe.” Read more

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