From Keeping Up with the Joneses to Keeping Above Water: The Status of the US Consumer
A Publication of the BlackRock Investment Institute September 2011
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THE STATUS of THE US ConSUMER
Table of Contents
Point of Departure and Context: Where Does Consumer Leverage Stand Today? .......................... 2 US Consumer Deleveraging: Perceptions versus Realities, or The Heavy Lifting Still Lies Ahead ..... 4 The Economic Impact of Social Change: Dual Income Households and Debt ............................ 5 Consumer Demand for Credit and the Place of the Housing Market in this Process ........................... 6 Concluding Considerations and Investment Implications.................. 7
A Long Time Coming: Secular and Cyclical Dynamics in Consumer Leverage
In his classic work on the development of consumer finance in the United States, A Piece of the Action: How the Middle Class Joined the Money Class, journalist Joseph Nocera begins his story with a profoundly important moment that was nevertheless disregarded at the time: a September 1958 mass mailing of 60,000 modern-styled credit cards the first such distribution ever by Bank of America to the residents of Fresno, California. The manner in which US consumers have managed their money since that time has changed tremendously, but generally speaking that history has been one of expanding credit availability, increasing levels of leverage, and dramatically greater variety in financial products from which to choose. Furthermore, from the standpoint of credit provision, legislation in the 1970s and 1980s fostered the development of robust securitization markets1 that allowed for extraordinary credit expansion, eventually extending to most major sectors of the consumer economy. Finally, while it is formally beyond the scope of this paper, the past few decades have also witnessed broader cultural changes in purchasing behavior that some have argued illustrated a new, and heightened, form of conspicuous consumption that served as a backdrop to the rising consumer indebtedness of recent decades.2 In the wake of the recent financial crisis, and the subsequent recession, a great deal of commentary has been written regarding the state of consumer financial health, the degree of US household sector balance sheet repair, and the extent to which consumers spending can drive the economic recovery forward. Of course, these questions are all highly pertinent given the key position consumer spending occupies in its contribution to GDP growth today. In fact, with roughly 70% of GDP still driven by personal consumption activity, and with real incomes effectively stagnant in recent years, credit availability and a less leveraged consumer will be key factors in determining the degree of growth that can come from the consumer sector in the years ahead. That said, much of the commentary on this topic has drawn on the selective use of data and has often misapprehended key issues surrounding the topic; this paper is BlackRocks attempt to redress some of these shortcomings and put forward its view on the status of the US consumer today.
About The BlackRock Investment Institute
The BlackRock Investment Institute is a global platform that leverages BlackRocks expertise in markets, asset classes and client segments to generate investment insights that seek to enhance the firms ability to create a better financial future for clients. Launched in 2011, the Institute hosts a series of events through the BlackRock Investment Forum that foster debate around key investment themes. The Institutes goal is to produce a flow of information that makes BlackRocks portfolio managers better investors and helps deliver positive investment results for our clients.
Point of Departure and Context: Where Does Consumer Leverage Stand Today?
There are several metrics that can be used to attempt to gauge the level of consumer leverage, each with its own idiosyncrasies, but to establish a benchmark, in this case analogous to the Debt-to-GDP ratio of the United States; we think the use of a households stock of outstanding debt divided by its flow of income is most appropriate. A related measure of consumer financial health we shall also discuss is the Federal Reserves Household Debt Service Ratio (DSR), which measures a households financing costs and principal repayment as a percentage of its cash flow, or essentially the share of income required to maintain existing debt levels. The DSR has several shortcomings as a measure of household sector leverage, including the fact that many exogenous factors, such as market interest rates, credit availability, and credit liquidity will ultimately determine the true debt burden of the consumer.
The opinions expressed are those of the BlackRock Investment Institute as of September 2011, and may change as subsequent conditions vary.
1 For more on our views of the securitization markets in the aftermath of the financial crisis, please see: The Future of Securitization BlackRock Inc., New York, January 2011. 2 Schor, Juliet B. The Overspent American: Why we Want What we Dont Need, HarperPerennial, New York: 1998.
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Figure 1: Household Debt/Income Varies by Measures Used
PERCENT OF INCOME
Figure 2: Personal Savings Rate
15%
PERCENT OF DISPOSABLE INCOME
250% 200 150 100 50 0 3/60 3/70 3/80 3/90 3/00 3/11
US Disposable Personal Income Nominal Dollars SAAR US Personal Income Excluding Transfer Receipts Chained 2005 Dollars SAAR Personal Income Wage & Salary Disbursements SAAR
12 9 6 3 0 6/61 6/71 6/81 6/91 6/01 6/11
US Personal Saving as a % of Disposable Personal Income
Source: US BEA.
Source: US BEA.
The question then becomes which flow of household income data does one select, and as can clearly be seen (see Figure 1) the variations in usable measures can significantly alter the picture of household indebtedness. For instance, if we look solely at the disposable income metric (a useful approximation of the cash flow of a given household, defined as personal income minus tax payments), it would seem to indicate that the consumer has made fairly meaningful progress in debt reduction (a deleveraging of 12.1 percentage points from peak indebtedness) in recent years. However, is that data really representative of the consumer as a whole, or more specifically, the ones that dominate consumption? As a reference point, we look at the Feds Survey of Consumer Finances and omit the top income bracket, since on the margin this cohort represents stable consumers and thus is not a group that contributes to added aggregate demand. When we apply this constraint, we find that the average household derives 78% of its income from wages and salaries, and that government transfer payments account for a meaningful amount of disposable income, which should be accounted for at a time when political debate abounds over reducing entitlement program levels. If we bifurcate further to only include wages and salaries (and not income derived from assets, which in any case tends to be concentrated more in higher income groups), the picture of the US consumers position is considerably more dire. Specifically, our debt-to-income ratio was close to 154% in Q4 2010, and deleveraging accomplished since the pre-recession peak was closer to 7.5 percentage points. Judging from an historical perspective, neither one of these outcomes looks particularly positive, nor are they likely to correct very quickly. As a point of reference, the US consumer debt-to-income ratio (using the wages and salaries metric) never exceeded the 80% level throughout the 1960s and 1970s, but then during the next two decades its debt structure fundamentally changed, resulting in a 105% increase over the same time period to ascend to current levels.
Through the first phase of this leveraging process the consumers ability to service debt payment remained fairly unimpeded. While debt-to-income grew, the DSR remained fairly stable, which was largely the result of low or declining interest rates, rising asset prices (namely housing) and low inflation. An absence of a change in those variables in aggregate made the rise in overall leverage levels appear sustainable. Coincidentally, we also saw a secular decline in the personal savings rate (see Figure 2), which allowed greater amounts of disposable income to be redirected to debt service. In the period from 2000 to 2007, however, we witnessed a shift in this dynamic and for the first time in 20 years we observed a secular rise in the DSR (see Figure 3). During this seven-year period more households took on higher mortgage payments, as well as greater leverage levels overall. The results of this real estate (and more accurately credit) boom and bust, and the incredible 54% increase in overall leverage levels in those seven years alone, are of course the bitter harvests of financial crisis, severe recession, and anemic recovery.
Figure 3: Household Debt Service Ratio
15%
PERCENT OF INCOME
14 13 12 11 10 9 6/81 6/86 6/91 6/96 6/01 6/06 6/11
Fed US Financial Obligations Household Debt Service Ratio Total SA
Source: Federal Reserve.
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THE STATUS of THE US ConSUMER
US Consumer Deleveraging: Perceptions versus Realities, or The Heavy Lifting Still Lies Ahead
As mentioned, there is a wide dispersion of opinion on where the US consumer stands in its deleveraging process, and as we illustrated on the previous page, the wide discrepancy in views often results from imperfect data. This fact necessitates that broad assumptions sometimes need to be made, and proxy measures utilized, which attempt to back into the respective roles of intentional deleveraging versus credit events (such as defaults) in this process. Further, data and analysis of this kind will almost always be highly subject to idiosyncratic interpretation. Two examples that illustrate the divergence are, a recent Federal Reserve Board of New York study3 that found that the majority of deleveraging has been the result of intentional debt repayment and reduced demand for revolving credit lines. And a report4 by Moodys Analytics, in contrast, which found that the overwhelming majority of consumer deleveraging was precipitated by defaults and charge-offs. Still, given the factors at play, it should not be entirely surprising that such varying conclusions can be drawn on the same issue. For our part, we think there are elements of truth to both positions, as we have seen data that suggests that charge-off deleveraging, while previously quite significant, is probably largely behind us, and that consumers have indeed been paying off debt at a moderate pace. More recently, we have seen data indicating several months of increases in total consumer credit, leading some to suggest that the bulk of consumer deleveraging expected to take place over this credit cycle may be over, or even more optimistically that the consumer may be coming back. We disagree with this assessment, and suggest that when one looks at recent trends in revolving versus non-revolving debt (see Figure 4) much of the increase in consumer debt has been in non-revolving credit, perhaps reflecting a slight pick-up in auto sales and an increase in student loan borrowing due to the poor employment environment.
Figure 5: Household Liabilities to Assets
PERCENT LIABILITIES TO ASSETS
25% 20 15 10 3/61 3/71 3/81 3/91 3/01 3/11
US Household Debt
Source: Flow of Funds.
On the other hand, the last two months have witnessed increases in revolving consumer credit, so while thus far in the recovery period it would appear that the consumer is hesitant to make meaningful purchases with credit cards, the trends here remain in flux and will need to be watched closely in the months ahead. One metric that we find particularly worrisome, and indeed one that may have abetted the high consumer leverage levels of the recent credit cycle, is the household debt-to-assets ratio (see Figure 5). This measure of leverage states that a households debt burden could not be considered to be increasing if any rise in debt was matched by a commensurate accumulation of financial assets. Thus, from roughly 2001 to 2007, as the credit bubble was peaking, the debt-to-assets ratio of the US consumer did not show that consumer leverage was out of balance, or rising at unsustainable rates, primarily due to the concurrent appreciation of assets (both housing and financial). The dramatic shortcomings of this popular wealth-based measure became clear in the housing collapse of 2007 and 2008 when the value of financial and housing assets plummeted, creating a drop in net worth, while market liquidity all but disappeared, leaving households unable to monetize assets to reduce, or keep current on, existing debts as they were met with income disruptions. Essentially, the debt-to-assets measure fails to account for changes in household asset liquidity, and as a result can present an inadequate and misleading picture of household finances. The Feds Survey of Consumer Finances illustrates this key inadequacy in aggregate Household Flow of Funds and Personal Income data. For the average household, or those in the four bottom income quintiles, housing assets (which are highly illiquid) comprise nearly half of all household assets. Further, home price declines reduced the ability of many homeowners to refinance and reduce burdensome mortgage payments. Moreover, many common financial assets amongst those in this cohort, such as the 401(k), life insurance
Figure 4: Revolving & Non-Revolving Debt
MONTH OVER MONTH CHANGE ($ BILLION)
20 10 0 -10 -20
Revolving
20 10 0 -10 -20 6/04 6/05 6/06 6/07 6/08 6/09 6/10 6/11
Non-Revolving
3 MONTH MOVING AVERAGE ($ BILLION)
Source: Federal Reserve.
3 Brown, Meta, Haughwout, Andrew, Donghoon, Lee, and van der Klaauw, Wilbert. Have Consumers Been Deleveraging?, Liberty Street Economics blog, Federal Reserve Bank of New York, March 21, 2011. 4 Deritis, Cristian. Consumer Credit and the Great Recovery, Regional Financial Review, Moodys Analytics, March 2011.
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The Economic Impact of Social Change: Dual Income Households and Debt
According to the Bureau of Labor Statistics Annual Social and Economic Supplement (ASEC), the portion of married households supported by two incomes eclipsed traditional single-income households in the mid-1970s and now constitutes roughly twothirds of all married households. Indeed, even outside of married households, the portion of households supported by more than one income has steadily increased over the past few decades, a social trend that has clearly had implications for US consumer debt dynamics. From the data, one could deduce that the diversification of income sources within dual income households diminished the perceived risk of assuming more debt. This perception stemmed in part from the view that there was a low likelihood of losing both sources of income, allowing a dual income household where one earner suddenly becomes unemployed to still have some capacity to service current debt levels, at least in the short term. Since the initial phase of the financial crisis in 2007, however, and the subsequent spike and sustained level of unemployment that followed on with the recession and slow recovery, the number of dual income households has declined almost 9% from peak levels. This meaningful decline in households drawing on two income sources (see Figure 6) brings the number of these households back to the level last seen in 1996. Of course, consumer debt levels (whether using the wages and salaries or total disposable income measures) have retraced only to 2004 or 2005 levels, respectively, creating a profound mismatch in the flexibility (and margin of safety) many households previously had in servicing debt levels under two incomes, with a newfound situation of
PERCENT
plans, annuities, and pension assets are also highly illiquid and would be difficult to use toward debt service. The bottom line is that asset liquidity matters, and moreover, while some progress in consumer debt reduction has been made, the heavy lifting of meaningful deleveraging still lies ahead.
Figure 7: % of Unemployed 15 Weeks and Over
70% 60 50 40 30 20 10 0 1/01 Source: Bureau of Labor Statistics. 1/03 1/05 1/07 1/09 1/11
dealing with the same amount of debt while drawing on only one. Thus, many households have seen not only a deterioration in their ability to service debt, but also find themselves in a situation of heightened perceived risk of leverage, as single income households are more vulnerable to unfavorable employment dynamics. This trend of decline in the number of dual income households will likely take time to reverse. The sluggish nature of the current economic recovery, and what we think are structural unemployment issues across the country, may combine to lengthen the amount of time required for these households to replace lost sources of income (see Figure 7). This suggests that many of these households will need to dramatically deleverage to bring their finances back into some approximation of balance with regard to their debts and their incomes. While US consumers have experienced a powerful wealth effect over the past few decades, with asset price appreciation in both housing and financial assets, as well as the powerful effect of rising levels of dual income households, recent dramatic reversals in these trends argue for difficult times ahead for consumer spending and the ability and willingness to draw on credit. We think to resurrect higher levels of consumer spending: we must see sustained and genuine improvement to the labor market, real disposable income growth, and a reduction in the already low savings rate. Until these conditions are fulfilled, it is very difficult to see how the US consumer can return to anything like prior spending levels, which has vitally important implications for the household sectors ability to spur more rapid economic growth.
Figure 6: Dual Income Households
50
MILLIONS OF HOUSEHOLDS
40 30 20 10 0 67 71 75 79 83 87 91 95 99 03 09
Consumer Demand for Credit and the Place of the Housing Market in this Process
To better illustrate the wealth destruction that took place for the US consumer in the wake of the financial crisis and recession, consider the following three data point highlights from Harvard Universitys Joint Center for Housing Studies: (1) The total amount of loss in real household wealth from 2006 to 2010, 70% of which
Source: Bureau of Labor Statistics.
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THE STATUS of THE US ConSUMER
was due to home equity destruction from the 2006 market peak, was $12.4 trillion. The massive loss in home equity also underscores the reduced levels of collateral value from which borrowing and consumption might take place. Of course, asset price declines and falling financing costs, while painful for some, can spell opportunity for others, and we have witnessed dramatic improvements to housing affordability for those who have been able to maintain stable income: (2) for instance, a typical household in San Francisco would recently have to spend 38% of their income to purchase a median-price home, but in 2007 that same home would have commanded 76% of household income. Finally, while affordability in many regions of the country has greatly improved, access to credit for many has become difficult and we are increasingly seeing purchasers eschewing borrowing for their home buying at all: in fact, (3) in 2010 more than 27% of all homes purchased were all cash deals, a 38% increase over 2009s level, and well above historic averages for this typically leveraged asset. Additionally, we may be at the early stages of a secular change away from debt with respect to this asset class, regardless of the availability of credit. These facts dramatically illustrate the changed position of the US consumer today, relative to its status in the period prior to the financial crisis, and indeed balance sheet repair and psychologically induced caution will be with us for quite some time. As an aside, 14 years after the Asian crisis began in July 1997, most Asian countries banking systems have lower loan-to-deposit ratios than before that crisis broke. And while credit standards have tightened a good deal in the US since the crisis, this does not appear to be the main factor inhibiting loan growth today. For example, in a recent Senior Loan Officer Opinion Survey from the Federal Reserve, banks reported a significantly greater willingness to lend to consumers in the first quarter of 2011, however consumer loan growth at commercial banks declined 6.7% at the same time (see Figure 8), despite the fact that the willingness metric was the strongest
result for that measure in 17 years. Moreover, the news is no better for mortgage lending, and many banks have been reporting declining mortgage loan balances as the housing market has remained mired in stagnation (or in some cases, continued decline). In housing, we are effectively witnessing a perfect storm of tight supply, relatively restrictive mortgage standards, and weak demand as falling home prices continue to keep prospective buyers at bay, while more transactions are being done in cash. In some respects, the housing market appears to be exhibiting something of the deflationary psychology that the Fed feared so tremendously at the level of the aggregate economy, so as to initiate its unprecedented quantitative easing programs. Consumer psychology and sentiment in the matter of spending and willingness to borrow should not be discounted, and when one looks at survey data that indicates that future wage increase expectations have effectively remained flat for two years now, and that consumer purchasing plans for homes and autos have only recently stabilized from a several year downtrend, we must take seriously the secular pressures on the consumer. Further, it is not solely expectations and psychology holding spending back, but beyond the muchdiscussed high unemployment levels, personal income growth has remained weak. For instance, the 3-month moving average of personal income, less government transfer payments, has only recently returned to 2003 levels, underscoring the pressure spending is under. Additionally, one of the engines of US middle class prosperity and identity, and what came to be known as the American Dream, homeownership, has essentially stalled as a route to an improved life for many people.5 Even many governmental attempts to aid homeowners have seemingly fallen flat. A prime example is simply the Feds attempt to keep mortgage rates near historic lows, which sensibly would have the effect of allowing households to refinance mortgages and redeploy saved capital from this process either to
Figure 8: Loan Growth and Willingness-to-Lend
50%
NET PERCENT OF BANKS
Figure 9: Conventional 30-Year Mortgage Rate
8%
YOY PERCENT PERCENT
50%
More Willing
25 0 -25 -50 7/91
25 0 -25
7 6 5 4 1/04 1/05 1/06 1/07 1/08 1/09 1/10 8/11
FHLMS Fixed Rate Mortgage
Less Willing
-50 7/01 7/06 7/11
YoY Loan Growth (RHS)
7/96
Willingness-to-Lend (LHS)
Source: Federal Reserve, Willingness to Lend: Senior Loan Survey.
Source: Freddie Mac.
5 For the broad-based classic examination of the concept of the American Dream, see Curti, Merle. The American Exploration of Dreams and Dreamers, Journal of the History of Ideas, 27, no. 3, (JulySeptember 1966): pp. 391-416.
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debt service or to spending. While certainly the approach worked to some degree, at this point borrowers no longer appear responsive to low and declining mortgage rates (see Figure 9), indicating that the majority of households that could reduce payments have done so, and many of the rest are likely underwater on the mortgage and are unable to qualify. It is also axiomatic that until we see a meaningful pickup in residential housing demand, the residential housing industry, and those employed by it, or in adjacent industries, will continue to struggle.
Concluding Considerations and Investment Implications
The stresses visited on the typical US consumer over the past few years have been tremendous, and while policy actions appear to have stabilized the economy and set it on a path of slow recovery, the pace of healing, in labor markets and the housing sectors in particular, is arduous for many. Just under one quarter of outstanding mortgage loans borrowers, numbering more than 11 million homeowners, exhibit negative equity in their homes. Beyond the sizable housing inventory on the market, approximately 2.2 million mortgage loans are grinding their way through the foreclosure process, and nearly two-thirds of these mortgage-holders have not made payment in at least a year. Moreover, the data makes clear that the less equity a homeowner holds in the property, the higher the likelihood of strategic default, or essentially the decision to improperly abrogate payment on the debt obligation, regardless of the ability to pay. Add to these stresses the high levels of unemployment and underemployment, the need for households to continue the deleveraging process, as well as the limitations (perceived or real) of the effectiveness of policy responses, and recent equity market volatility, and this cocktail does not argue for a near-to-mid-term rebound in consumer spending. If long-term leverage sustainability is assumed to reside near 1990 levels, then the bulk of the deleveraging process remains ahead of the American consumer, regardless of the income measure used. In the past expansion, consumer spending growth was able to outpace income growth because of the wealth effect created by the housing boom, which increased the collateral value upon which consumers could lever, fueling a coincident expansion of credit. In our view, however, the era of abundant consumer credit has ended, at least for the time being. In future years, it is more likely that secular tightening in consumer credit markets will force US consumers to keep consumption growth roughly in line with income growth and to slowly reduce their current level of leverage. We think that these trends, coupled with stubbornly high unemployment, higher commodities prices, and slower growth in
6 Please see Can Investors Continue to Profit from Corporate Margins? BlackRock Inc., New York, July 2011.
wages and salaries, will likely contribute to a lower level of personal consumption growth over the next few years. Moreover, since consumer spending is a key component of the GDP growth rate, this would argue for generalized economic growth levels that are, at best, modest for years to come, and may in fact appear anemic when compared to pre-crisis growth rates. As we have argued elsewhere, if we are going to see a more robust economic recovery than this analysis would suggest, the driving force would appear to have to come from somewhere other than the household sector. Yet dramatically increased leverage levels, a newfound ethic of austerity, and political inertia at all levels of government would also argue for the limits of policy response effectiveness from governments. The corporate sector, however, has profoundly strengthened its financial position over the past few years, and it may be the key to driving growth. For instance, the net debt/equity ratio of S&P 500 companies (ex-financials) has dropped precipitously over the past decade from more than 90% around January 2000 to less than 45% today. Moreover, even firms that reside in the below investment grade credit ratings range currently operate with leverage levels close to historical lows. When this is combined with recent debt re-financings and solid cash flow characteristics, the result has been very low levels of high yield company defaults. Additionally, momentum in the changes to credit ratings has shifted in the favor of corporations, with ratings upgrade to downgrade ratios improving dramatically over the past year. In a fascinating turn of events, the corporate sector is thriving in an environment where the economy overall is not. Of course, this is the great economic Catch-22 of our time, since corporate sector investment and continued strength will be highly dependent on a recovery in consumer spending, which we believe will be hampered for years to come. Export markets may present a partial solution to this conundrum, but it is not clear that exports could grow sufficiently to meaningfully impact the losses in consumer aggregate demand. In the end, after decades of keeping up with the Joneses, and the high degrees of leverage which this entailed, the US consumer may now be in store for a sustained period of relative austerity and slow deleveraging that will result in very modest economic growth rates for years to come. Our conclusion that trend growth in the US will be impeded by a tapped out consumer for some time aligns with our views expressed in the recent BlackRock Investment Institute white paper6 on the sustainability of corporate profit margins. Yet while corporate margin levels may be sustainable for the time being, consumer leverage and uncertainty over the sustainability of the economic and labor market recovery will weigh on consumers and the household sector in the US for the foreseeable future.
This paper is part of a series prepared by the BlackRock Investment Institute and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of September 2011 and may change as subsequent conditions vary. The information and opinions contained in this paper are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. This paper may contain forward-looking information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this paper is at the sole discretion of the reader. This material is being distributed/issued in Australia and New Zealand by BlackRock Financial Management, Inc. (BFM), which is a United States domiciled entity. In Australia, BFM is exempted under Australian CO 03/1100 from the requirement to hold an Australian Financial Services License and is regulated by the Securities and Exchange Commission under US laws which differ from Australian laws. In Canada, this material is intended for permitted clients only. BFM believes that the information in this document is correct at the time of compilation, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BFM, its officers, employees or agents. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. In Latin America this material is intended for Institutional and Professional Clients only. This material is solely for educational purposes and does not constitute an offer or a solicitation to sell or a solicitation of an offer to buy any shares of any fund (nor shall any such shares be offered or sold to any person) in any jurisdiction within Latin America in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible that they have not been registered with the securities regulator of Brazil, Chile, Colombia, Mexico and Peru or any other securities regulator in any Latin American country and no such securities regulators have confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America. The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. Any companies listed are not necessarily held in any BlackRock accounts. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.
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