Chart of the week

Despite rate pause, the Barclays Agg remains underwater

The Barclays Agg remains in negative territory YTD despite a kinder rate environment. We compare core fixed income returns in 2020 and 2021.

May 28, 2021 | 2 minute read

Barclays Agg return contribution: 2020 vs. 2021 YTD

Source: Bloomberg Finance, L.P., as of May 25, 2021. Barclays Agg refers to the Bloomberg Barclays U.S. Aggregate Bond Index.

  • Following its rapid rise in Q1, the 10-year U.S. Treasury yield has moderated significantly over the past two months, generally hovering around 1.6%. The relative calm has also relieved pressure on core fixed income investments, which recorded their worst quarterly return during Q1 in four decades.1
  • Amid a more settled, rangebound Treasury market, the Barclays Agg has generated a modestly positive return quarter to date. The damage done in Q1, however, remains evident in its still-negative year-to-date total return.
  • As the chart highlights, the Barclays Agg’s total return this year has largely been a mirror image of last year, highlighting the downside of duration. The Agg saw significant price gains last year as interest rates plummeted — price returns accounted for approximately 80% of the total return.2
  • Like other high-duration investments, however, the Barclays Agg has felt the impact from this year’s rate rise as the minor increase in income from higher interest rates has been more than offset by falling prices.2
  • The chart points to the essential conundrum for fixed income investors today: Traditional fixed income portfolios face significant downside risk if rates move higher, but offer little upside if rates continue to trade sideways or decline again.
  • Against this backdrop, investors may increasingly need to turn alternative asset classes to fulfill the role that traditional fixed income investments once played in their portfolio.

  • Core fixed income investments represented by the Bloomberg Barclays U.S. Aggregate Bond Index.

  • Bloomberg Finance, L.P., as of May 25, 2021. Barclays Agg refers to the Bloomberg Barclays U.S. Aggregate Bond Index.

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