Chart of the week

The bond market sees exponential growth in the past decade

As traditional fixed income lags, see why actively managed strategies may offer better opportunities in the bond market.

November 16, 2018 | 2 minute read
Outstandings by asset class
  • The performance of traditional fixed income investments so far in 2018 highlights the difficulties investors have faced over the past several years.
  • For example, the Bloomberg Barclays U.S. Aggregate Bond Index, the benchmark for a traditional fixed income portfolio, has returned -2.2% YTD as interest rates have gradually edged higher.1 Looking over the past 5 years, the index’s average yield is just 2.4%, with annualized total returns of 1.6%, compared to a yield of 6.6% the prior 30 years and a significantly higher total return of 8.1%.2
  • Investors looking for income and return opportunities today increasingly may need to look outside core fixed income markets. Fortunately, doing so has become a more realistic option as these asset classes, including high yield bonds, senior secured loans, structured products and emerging market debt, represent a broad, $6.5 trillion market.3
  • The chart shows the exponential growth in several of these markets over the past decade. The high yield bond market grew 64%, from approximately $730 billion in 2008 to $1.2 trillion as of Q3 2018. Meanwhile, the senior secured loan market nearly doubled in size in the same time frame while CLOs have done so since January 2013.4
  • Over the last 10 years, index mutual funds and ETFs have been created to track these markets as well as others outside of core U.S. fixed income. However, many of these investment options focus only on the most liquid segments of the credit markets.
  • An actively managed investment strategy may help investors gain exposure to less-liquid and harder-to-access areas of the credit markets both within and beyond the benchmark indices.

  • Bloomberg, as of November 15, 2018.

  • Last 5 years represents December 31, 2012 to September 30, 2018. Prior 30 years is from December 31, 1982 to December 31, 2012.

  • As of December 31, 2017, representing emerging market government debt, emerging market corporate debt, U.S. high yield bonds, U.S. senior secured loans, European high yield bonds, European senior secured loans, U.S. distressed high yield bonds, and asset-backed securities.

  • Bloomberg and S&P Global Market Intelligence, as of September 8, 2018. Investment grade based on the ICE BofAML U.S. Corporate Master Index. High yield based on the ICE BofAML U.S. High Yield Master II Index. Senior secured loans based on the S&P/LSTA Leveraged Loan Index. CLOs based on the J.P. Morgan CLO Index.

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