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Global Fixed Income Bulletin
May 30, 2022

Annus Horribilis

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May 30, 2022

Annus Horribilis

Global Fixed Income Bulletin

Annus Horribilis

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May 30, 2022


If March was a tough month, April was literally off the charts! Returns across the asset spectrum were dire, except of course if your asset included ‘commodity’ in its name. Rising yields and widening spreads were the name of the game. April was also the month when equities caught up to fixed income and now have worse returns year-to-date (S&P 500 down 13.3%). While a bunch of problems in the world can be blamed on the Russian/Ukrainian situation, it is not the primary driver anymore. The reason for the carnage: inflation, inflation, inflation! And of course, what central banks are doing and planning to do about it.


Inflation shows no sign of significantly abating. U.S. inflation may have peaked, but that is a hollow victory when headline inflation is 8.5% (highest since 1982). Central banks, particularly the U.S. Federal Reserve (Fed), are now on a warpath to get rates up quickly or “expeditiously” using Chairman Powell’s parlance. Markets have priced in rapid rate hikes generally everywhere, but most importantly in the U.S. where the economy appears to be overheating the most outside of Eastern Europe. With labor markets still firm if not too firm central banks will be in no mood to lift the slow pace of tightening until policy gets to at least neutral. Interestingly, for the first time in a while the U.S. yield curve steepened, with U.S. Treasury 2-year yields up only 38 basis points (bps) while U.S. Treasury 10-year yields rose 60 bps, suggesting the Fed is not doing enough to contain inflation risks, despite the fact that expectations of year-end 3-month rates rose 45 bps.

The combination of the rise in yields, heightened worries of tighter policy AND a horrible performance of equities undermined credit and emerging markets. While the U.S. Treasury market returned -3.1% in April, investment-grade corporates returned -5%, high yield -3.6% and emerging markets -5.9%. The sharp fall in equities, bodes ill for high yield, the most equity sensitive part of fixed income. The risk-off environment in April also boosted the U.S. dollar. It rose anywhere from 2% against the Singapore dollar to 6.5% versus the Japanese yen to over 7% against the South African rand, a negative development for the global economy.

DISPLAY 1: Asset Performance Year-to-Date

Note: USD-based performance. Source: Bloomberg. Data as of April 30, 2022. The indexes are provided for illustrative purposes only and are not meant to depict the performance of a specific investment. Past performance is no guarantee of future results. See below for index definitions.

DISPLAY 2: Currency Monthly Changes Versus U.S. Dollar

Note: Positive change means appreciation of the currency against the USD. Source: Bloomberg. Data as of April 30, 2022.

DISPLAY 3: Major Monthly Changes in 10-Year Yields and Spreads

Source: Bloomberg, JPMorgan. Data as of April 30, 2022.


Fixed Income Outlook

Developments in April did not deviate materially from the trajectory established earlier this year. Inflation continues to be a source of concern which, combined with tight labor markets, will—in our view—keep central banks on their tightening trajectory. Commodities, particularly food prices are likely to firm further, exacerbating the central bank’s inflation problem. The Fed does not plan to letup in tightening until at least policy is back to neutral, a level Chairman Powell has identified as a broad 2-3% range, giving them significantly leeway to up the pace this year if inflation does not improve. Another 150 bps of hikes this year looks taking U.S. Fed funds to the middle of the neutral range. Global yields remain biased to rise further.

As time passes, it becomes clearer and clearer that monetary policy was kept too easy for too long. We are talking about ALL central banks save the ones in China and Japan. Monetary policy everywhere, not just in the U.S., is in a race to catch up to “neutral” or move to a restrictive stance. But the gap between inflation and interest rates remains wide in most countries, indicating that unless inflation falls materially or is expected to fall materially in the months ahead, more rate hikes are coming. If inflation does not fall enough (yet to be defined, but probably no higher than the Fed’s current end of year forecast), expect additional unexpected tightening next year, i.e., a higher terminal Fed funds rate. This would raise the probability of a recession in 2023 and undermine credit assets.

The primary reason for unremitting central bank hawkishness is growth remains firm despite all the challenges thrown at it this year. Although inflation is acting as a tax on households and businesses and yields are moving higher, labor markets and corporate profitability are strongly supporting spending. For example, financial balances among households and corporations (big and small) are strong in surplus. It is estimated that the household sector has a surplus of 0.8% of GDP larger than pre-pandemic AND has accumulated approximately $3 trillion of excess savings. Moreover, corporate excess savings across the entire corporate universe are also high, equating to about 3% of GDP. What this means is that the probability of achieving a soft landing, a reduction of inflation to target AND no recession is much higher.

On the negative side, an economy with strong private sector balance sheets AND income generating capabilities will be harder to slow down, meaning the Fed may have to raise rates by more than is expected to get the requisite slowdown in demand to bring inflation to target. Thus, given the current level and trajectory of yields, we do not anticipate a recession either this year or next. The earliest it could happen based on our analysis is 2024. This is a long way off and supports a more 1994 interpretation of this year’s rate hiking cycle as one that will slow things down enough to contain inflation without throwing the U.S. or global economy into a recession. We must keep in mind that the global economy is decelerating from a very high level with little risk of near-term economic downturn.

Corporate profitability is likely to be varied. The energy, commodities, and defense sectors are likely to benefit; Healthcare and Telecoms will be least affected, and for Utilities it will depend on their exact regulatory and commodity exposure. Both industrial and consumer sectors will be negatively affected, but at least they were experiencing strong demand going into the crisis. However, there is no denying that the impact will be negative, with European corporates more affected. Spreads are now materially wider than at the beginning of the year, with notable underperformance of Europe.

Credit fundamentals are mixed. Credit quality is mixed in terms of profitability, earnings growth has likely peaked, and leverage and margins are plateauing. But balance sheets, liquidity and debt servicing capacity remain exceptionally strong, in our opinion. And, importantly spread widening as nominal and yields rise and economic data slows. It will be important to differentiate those companies who can continue to thrive in such an environment. Active management is likely to be key to performance. We do maintain a preference at the margin for high yield over investment grade but that is very idiosyncratic and industry specific and of late have been reducing credit risk in general.

EM outperformance has ended as global yields surged. Inflation problems tied to food and other commodities make many EM central banks biased to continue to raise rates as fast or faster than in developed countries. With several frontier economies on the verge of restructuring, risk remains there as well. Country level analysis will be vital to uncover value as we expect markets to place an emphasis on differentiation amongst countries and credits. EM is likely to struggle as long as DM central banks remain on their current hawkish trajectory and China struggles. A signal that things are turning will be a softening in the U.S. dollar. Although it has risen substantially in April and is likely to consolidate, there is no sign yet that its strength is coming to an end.

Developed Market Rate/ Foreign Currency


In April, yields continued their upward trend as markets priced in even more hawkish central bank policy. While economic data was more mixed, it continued to remain strong overall and on average was better than economists expected, allowing central banks to emphasize curbing inflation rather than having to support growth. Risk assets in general performed poorly as investors worried about the impact of tighter monetary policy and rising costs.1


Central banks have a challenging task in front of them: to curb inflation without hurting growth too much. Inflationary pressures remain very strong, but downside growth risks have also increased. The war in Ukraine continues, causing higher energy and commodity prices, which are already reducing consumer confidence and discretionary spending power. COVID remains impactful, with outbreaks in China sustaining supply chain disruptions. While a lot of hikes have already been priced in, neutral policy rate expectations are still modest vs. history, suggesting yields could rise further. Regarding foreign exchange, the U.S. dollar is likely to remain a beneficiary of tighter Fed policy and growing global growth concerns, while the yen may weaken further due to Japanese monetary policy being more accommodative than everywhere else.

Emerging Market Rate/ Foreign Currency


Emerging Markets Debt (EMD) continued to be challenged along with the broader risk markets in April. Russia’s invasion of Ukraine persisted with their focus concentrated on the eastern region. The annual spring meetings of the International Monetary Fund (IMF) occurred in Washington D.C. and in person for the first time since 2019. The overall tone was somewhat pessimistic as global growth was revised down for 2022 and 2023 and inflation projections increased.2 The three major EMD indices (U.S. dollar-denominated corporate debt,3 local sovereign debt,4 and U.S. dollar-denominated sovereign debt)5 were negative for the month.


We are optimistic on EMD as valuations appear to be well-compensating investors for the risk. The Russia/Ukraine war will continue to drive headlines and may continue for quite some time. Fundamentals are mixed, and while Fed tightening is a concern, markets appear to be pricing that in somewhat aggressively. The growth and inflation dynamic remains critical. Country level analysis will be vital to uncover value as we expect markets to place an emphasis on differentiation amongst countries and credits.

Corporate Credit


Credit spreads widened in April with general market volatility elevated once again amidst heightened macro uncertainty. News in the month continued to be dominated by the conflict between Russia/Ukraine where no progress was made towards a resolution. Credit markets saw weak technicals with demand limited by the negative price action in fixed income as risk free yields rose. Supply in April was significantly down.6

The high yield market was particularly weak in April. Over the month, the average yield climbed and the average spread grew significantly amidst a sharp jump in Treasury yields and weak technical conditions. Growing concern over the eventual economic impact from aggressive tightening of monetary conditions and the potential for an eventual “hard landing” prompted investors to reassess exposure to the lowest-rated segments of the high yield market. The top performing sectors for the month were transportation, other industrial and basic industry.7

Global convertibles fell the most in two years as concerns over inflation, interest rates and corporate earnings rattled markets. Convertibles, however, did outperform both of its underlying components. The convertibles market is now priced far closer to bonds than stocks as a lot of paper trades below par with less equity delta and more yield to maturity.8


We see spreads likely to be rangebound. Markets are supported by more attractive valuations and strong corporate results yet constrained by the macro uncertainties and weak technicals given the lack of demand while market volatility remains high. We are cautious on the high yield market, which has experienced significant pockets of volatility this year and there is little to suggest the environment for high yield will be become materially more supportive over the near term.

Securitized Products


April was another challenging month for securitized markets. Agency MBS underperformed again in April. Current coupon agency MBS spreads widened as the market is pricing in the end of quantitative easing (QE) and likely the beginning of quantitative tightening (QT). Agency MBS spreads could widen further as the Fed continues to reduce its purchases and possibly sell MBS. U.S. Non-agency RMBS spreads were significantly wider across all residential sectors in April, as nearly all risk assets cheapened given concerns about inflation, central bank policies and geo-political events. U.S. ABS spreads were also wider in April, but fundamental credit performance remains strong.9


We believe the securitized market still offers a unique combination of low durations, attractive yields, and solid credit fundamentals. We remain constructive on securitized credit. We remain cautious on agency MBS and interest rate risk.


The views and opinions expressed are those of the Portfolio Management team as of May 2022 and are subject to change based on market, economic and other conditions. Past performance is not indicative of future results.

1 Source: Bloomberg. Data as of April 30, 2022.

2 Source: Bloomberg. Data as of April 30, 2022.

3 Source: JPM CEMBI Global Diversified Index. Data as April 30, 2022.

4 Source: JPM EMBI Global Diversified Index. Data as April 30, 2022.

5 Source: J.P. Morgan GBI-EM Global Diversified Index. Data as of April 30, 2022.

6 Source: Bloomberg. Data as of April 30, 2022.

7 Bloomberg U.S. Corporate High Yield Index. Data as of April 30, 2022.

8 Refinitiv Global Convertibles Focus Index. Data as of April 30, 2022.

9 Bloomberg, as of April 30, 2022.


Risk Considerations

Diversification neither assures a profit nor guarantees against loss in a declining market.

There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline and that the value of portfolio shares may therefore be less than what you paid for them. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is  difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in a portfolio. Fixed-income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In a rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. In a declining interest-rate environment, the portfolio may generate less income. Longer-term securities may be more sensitive to interest rate changes. Certain U.S. government securities purchased by the strategy, such as those issued by Fannie Mae and Freddie Mac, are not backed by the full faith and credit of the U.S. It is possible that these issuers will not have the funds to meet their payment obligations in the future. Public bank loans are subject to liquidity risk and the credit risks of lower-rated securities. High-yield securities (junk bonds) are lower-rated securities that may have a higher degree of credit and liquidity risk. Sovereign debt securities are subject to default risk. Mortgage- and asset-backed securities are sensitive to early prepayment risk and a higher risk of default, and may be hard to value and difficult to sell (liquidity risk). They are also subject to credit, market and interest rate risks. The currency market is highly volatile. Prices in these markets are influenced by, among other things, changing supply and demand for a particular currency; trade; fiscal, money and domestic or foreign exchange control programs and policies; and changes in domestic and foreign interest rates. Investments in foreign markets entail special risks such as currency, political, economic and market risks. The risks of investing in emerging market countries are greater than the risks generally associated with foreign investments. Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, and correlation and market risks. Restricted and illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk). Due to the possibility that prepayments will alter the cash flows on collateralized mortgage obligations (CMOs), it is not possible to determine in advance their final maturity date or average life. In addition, if the collateral securing the CMOs or any third-party guarantees are insufficient to make payments, the portfolio could sustain a loss.

Our fixed income investment capabilities are driven by seven specialized teams – Agency MBS, Broad Markets Fixed Income, Emerging Markets, Floating-Rate Loans, High Yield, Municipals, and Securitized – which span the global fixed income capital markets.
Featured Fund

Basis point:
One basis point = 0.01%.

The indexes shown in this report are not meant to depict the performance of any specific investment, and the indexes shown do not include any expenses, fees or sales charges, which would lower performance. The indexes shown are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

“Bloomberg®” and the Bloomberg Index/Indices used are service marks of Bloomberg Finance L.P. and its affiliates, and have been licensed for use for certain purposes by Morgan Stanley Investment Management (MSIM). Bloomberg is not affiliated with MSIM, does not approve, endorse, review, or recommend any product, and does not guarantee the timeliness, accurateness, or completeness of any data or information relating to any product.

The Bloomberg Euro Aggregate Corporate Index (Bloomberg Euro IG Corporate) is an index designed to reflect the performance of the euro-denominated investment-grade corporate bond market.

The Bloomberg Global Aggregate Corporate Index is the corporate component of the Bloomberg Global Aggregate index, which provides a broad-based measure of the global investment-grade fixed income markets.

The Bloomberg U.S. Corporate High Yield Index measures the market of USD-denominated, non-investment grade, fixed-rate, taxable corporate bonds. Securities are classified as high yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below. The index excludes emerging market debt.

The Bloomberg U.S. Corporate Index is a broad-based benchmark that measures the investment grade, fixed-rate, taxable, corporate bond market.

The Bloomberg U.S. Mortgage Backed Securities (MBS) Index tracks agency mortgage-backed pass-through securities (both fixed-rate and hybrid ARM) guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA) and Freddie Mac (FHLMC). The index is constructed by grouping individual TBA-deliverable MBS pools into aggregates or generics based on program, coupon and vintage. Introduced in 1985, the GNMA, FHLMC and FNMA fixed-rate indexes for 30- and 15-year securities were backdated to January 1976, May 1977 and November 1982, respectively. In April 2007, agency hybrid adjustable-rate mortgage (ARM) pass-through securities were added to the index.

Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care.

Euro vs. USD—Euro total return versus U.S. dollar.

German 10YR bonds – Germany Benchmark 10-Year Datastream Government Index; Japan 10YR government bonds – Japan Benchmark 10-Year Datastream Government Index; and 10YR U.S. Treasury – U.S. Benchmark 10-Year Datastream Government Index.

The ICE BofAML European Currency High-Yield Constrained Index (ICE BofAML Euro HY constrained) is designed to track the performance of euro- and British pound sterling-denominated below investment-grade corporate debt publicly issued in the eurobond, sterling.

The ICE BofAML U.S. Mortgage-Backed Securities (ICE BofAML U.S. Mortgage Master) Index tracks the performance of U.S. dollar-denominated, fixed-rate and hybrid residential mortgage pass-through securities publicly issued by U.S. agencies in the U.S. domestic market.

The ICE BofAML U.S. High Yield Master II Constrained Index (ICE BofAML U.S. High Yield) is a market value-weighted index of all domestic and Yankee high-yield bonds, including deferred-interest bonds and payment-in-kind securities. Its securities have maturities of one year or more and a credit rating lower than BBB-/Baa3, but are not in default.

The ISM Manufacturing Index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.

Italy 10-Year Government Bonds – Italy Benchmark 10-Year Datastream Government Index.

The JP Morgan CEMBI Broad Diversified Index is a global, liquid corporate emerging markets benchmark that tracks U.S.-denominated corporate bonds issued by emerging markets entities.

The JPMorgan Government Bond Index – emerging markets (JPM local EM debt) tracks local currency bonds issued by emerging market governments. The index is positioned as the investable benchmark that includes only those countries that are accessible by most of the international investor base (excludes China and India as of September 2013).

The JPMorgan Government Bond Index Emerging Markets (JPM External EM Debt) tracks local currency bonds issued by emerging market governments. The index is positioned as the investable benchmark that includes only those countries that are accessible by most of the international investor base (excludes China and India as of September 2013).

The JP Morgan Emerging Markets Bond Index Global (EMBI Global) tracks total returns for traded external debt instruments in the emerging markets and is an expanded version of the EMBI+. As with the EMBI+, the EMBI Global includes U.S. dollar-denominated Brady bonds, loans and eurobonds with an outstanding face value of at least $500 million.

The JP Morgan GBI-EM Global Diversified Index is a market-capitalization weighted, liquid global benchmark for U.S.-dollar corporate emerging market bonds representing Asia, Latin America, Europe and the Middle East/Africa.

JPY vs. USD – Japanese yen total return versus U.S. dollar.

The Nikkei 225 Index (Japan Nikkei 225) is a price-weighted index of Japan’s top 225 blue-chip companies on the Tokyo Stock Exchange.

The MSCI AC Asia ex-Japan Index (MSCI Asia ex-Japan) captures large- and mid-cap representation across two of three developed markets countries (excluding Japan) and eight emerging markets countries in Asia.

The MSCI All Country World Index (ACWI, MSCI global equities) is a free float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and emerging markets. The term “free float” represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends.

MSCI Emerging Markets Index (MSCI emerging equities) captures large-and mid-cap representation across 23 emerging markets (EM) countries.

The MSCI World Index (MSCI developed equities) captures large and mid-cap representation across 23 developed market (DM) countries.

Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector.

The Refinitiv Convertible Global Focus USD Hedged Index is a market weighted index with a minimum size for inclusion of $500 million (U.S.), 200 million (Europe), 22 billion Yen, and $275 million (Other) of Convertible Bonds with an Equity Link.

The Russell 2000® Index is an index that measures the performance of the 2,000 smallest companies in the Russell 3000 Index.

The S&P 500® Index (U.S. S&P 500) measures the performance of the large-cap segment of the U.S. equities market, covering approximately 75 percent of the U.S. equities market. The index includes 500 leading companies in leading industries of the U.S. economy.

S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index seeks to measure the value of residential real estate in 20 major U.S. metropolitan areas: Atlanta, Boston, Charlotte, Chicago, Cleveland, Dallas, Denver, Detroit, Las Vegas, Los Angeles, Miami, Minneapolis, New York, Phoenix, Portland, San Diego, San Francisco, Seattle, Tampa and Washington, D.C.

The S&P/LSTA U.S. Leveraged Loan 100 Index (S&P/LSTA Leveraged Loan Index) is designed to reflect the performance of the largest facilities in the leveraged loan market.

The S&P GSCI Copper Index (Copper), a sub-index of the S&P GSCI, provides investors with a reliable and publicly available benchmark for investment performance in the copper commodity market.

The S&P GSCI Softs (GSCI soft commodities) Index is a sub-index of the S&P GSCI that measures the performance of only the soft commodities, weighted on a world production basis. In 2012, the S&P GSCI Softs Index included the following commodities: coffee, sugar, cocoa and cotton.

Spain 10-Year Government Bonds – Spain Benchmark 10-Year Datastream Government Index.

The Thomson Reuters Convertible Global Focus USD Hedged Index is a market weighted index with a minimum size for inclusion of $500 million (U.S.), 200 million euro (Europe), 22 billion yen, and $275 million (Other) of convertible bonds with an equity link.

U.K. 10YR government bonds – U.K. Benchmark 10-Year Datastream Government Index. For the following Datastream government bond indexes, benchmark indexes are based on single bonds. The bond chosen for each series is the most representative bond available for the given maturity band at each point in time. Benchmarks are selected according to the accepted conventions within each market. Generally, the benchmark bond is the latest issue within the given maturity band; consideration is also given to yield, liquidity, issue size and coupon.

The U.S. Dollar Index (DXY) is an index of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners’ currencies.

The Chicago Board Options Exchange (CBOE) Market Volatility (VIX) Index shows the market’s expectation of 30-day volatility.

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Hong Kong: This material has been issued by Morgan Stanley Asia Limited for use in Hong Kong and shall only be made available to “professional investors” as defined under the Securities and Futures Ordinance of Hong Kong (Cap 571). The contents of this material have not been reviewed nor approved by any regulatory authority including the Securities and Futures Commission in Hong Kong. Accordingly, save where an exemption is available under the relevant law, this material shall not be issued, circulated, distributed, directed at, or made available to, the public in Hong Kong. Singapore: This material may not be circulated or distributed, whether directly or indirectly, to persons in Singapore other than to (i) an accredited investor (ii) an expert investor or (iii) an institutional investor as defined in Section 4A of the Securities and Futures Act, Chapter 289 of Singapore (“SFA”); or (iv) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. This publication has not been reviewed by the Monetary Authority of Singapore. Eaton Vance Management International (Asia) Pte. Ltd. (“EVMIA”) holds a Capital Markets Licence under the Securities and Futures Act of Singapore (“SFA”) to conduct, among others, fund management, is an exempt Financial Adviser pursuant to the Financial Adviser Act Section 23(1)(d) and is regulated by the Monetary Authority of Singapore (“MAS”). Eaton Vance Management, Eaton Vance Management (International) Limited and Parametric Portfolio Associates® LLC holds an exemption under Paragraph 9, 3rd Schedule to the SFA in Singapore to conduct fund management activities under an arrangement with EVMIA and subject to certain conditions. None of the other Eaton Vance group entities or affiliates holds any licences, approvals or authorisations in Singapore to conduct any regulated or licensable activities and nothing in this material shall constitute or be construed as these entities or affiliates holding themselves out to be licensed, approved, authorised or regulated in Singapore, or offering or marketing their services or products. Australia: This publication is disseminated in Australia by Morgan Stanley Investment Management (Australia) Pty Limited ACN: 122040037, AFSL No. 314182, which accept responsibility for its contents. This publication, and any access to it, is intended only for “wholesale clients” within the meaning of the Australian Corporations Act. EVMI is exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of the provision of financial services to wholesale clients as defined in the Corporations Act 2001 (Cth) and as per the ASIC Corporations (Repeal and Transitional) Instrument 2016/396. Calvert Research and Management, ARBN 635 157 434 is regulated by the U.S. Securities and Exchange Commission under U.S. laws which differ from Australian laws. Calvert Research and Management is exempt from the requirement to hold an Australian financial services licence in accordance with class order 03/1100 in respect of the provision of financial services to wholesale clients in Australia.

For professional investors, this document is circulated or distributed for informational purposes only. For those who are not professional investors, this document is provided in relation to Morgan Stanley Investment Management (Japan) Co., Ltd. (“MSIMJ”)’s business with respect to discretionary investment management agreements (“IMA”) and investment advisory agreements (“IAA”). This is not for the purpose of a recommendation or solicitation of transactions or offers any particular financial instruments. Under an IMA, with respect to management of assets of a client, the client prescribes basic management policies in advance and commissions MSIMJ to make all investment decisions based on an analysis of the value, etc. of the securities, and MSIMJ accepts such commission. The client shall delegate to MSIMJ the authorities necessary for making investment. MSIMJ exercises the delegated authorities based on investment decisions of MSIMJ, and the client shall not make individual instructions. All investment profits and losses belong to the clients; principal is not guaranteed. Please consider the investment objectives and nature of risks before investing. As an investment advisory fee for an IAA or an IMA, the amount of assets subject to the contract multiplied by a certain rate (the upper limit is 2.20% per annum (including tax)) shall be incurred in proportion to the contract period. For some strategies, a contingency fee may be incurred in addition to the fee mentioned above. Indirect charges also may be incurred, such as brokerage commissions for incorporated securities. Since these charges and expenses are different depending on a contract and other factors, MSIMJ cannot present the rates, upper limits, etc. in advance. All clients should read the Documents Provided Prior to the Conclusion of a Contract carefully before executing an agreement. This document is disseminated in Japan by MSIMJ, Registered No. 410 (Director of Kanto Local Finance Bureau (Financial Instruments Firms)), Membership: The Japan Securities Dealers Association, the Investment Trusts Association, Japan, the Japan Investment Advisers Association and the Type II Financial Instruments Firms Association.


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