Chart of the week

The Agg races back. Yet core fixed income remains challenged.

Rates decline and the Agg returns to almost breakeven. This week’s chart looks at why core fixed income remains challenged despite the recent rally.

August 6, 2021 | 2 minute read

Barclays Agg return by month and 10-year U.S. Treasury yield

Source: Bloomberg Finance, L.P., as of August 4, 2021. Barclays Agg refers to the Bloomberg Barclays U.S. Aggregate Bond Index. 10-year U.S. Treasury yield shows the yield as of the last day of each month.

  • The speed with which Treasury yields have moved in 2021 reflects a market still heavily influenced by fiscal and monetary policy. In Q1, the 10-year U.S. Treasury yield climbed 0.83% as economic and investor sentiment neared ecstatic levels.
  • Over the past six weeks, however, the 10-year has reversed much of its earlier rise as economic enthusiasm has waned, investors digest a still dovish-sounding Federal Reserve and the spread of the COVID-19 Delta variant has ushered in a restatement of certain social distancing measures.
  • While stocks have recorded new all-time highs this year regardless of the Treasury market’s direction, traditional fixed income assets have witnessed significant swings.
  • Once down as much as -3.43% in 2021, the Barclays Agg has notched four consecutive months of positive returns, bringing YTD returns to nearly breakeven. 1
  • This recovery is positive news for core fixed income investors. Yet it may also be fair to view the Agg’s recent returns as little more than a pyrrhic victory. That is, even with the wind of falling interest rates at its back again, core fixed income remains stuck in the same rut it has been in through all 2021. It offers investors minimal income – negative real yields — without the prospect of much further capital appreciation as rates have returned near their historical lows.
  • Against this backdrop, investors will likely need to continue turning to lower duration and alternative asset classes as they seek competitive levels of income.

  • Bloomberg Finance, L.P., as of August 4, 2021. Barclays Agg refers to the Bloomberg Barclays U.S. Aggregate Bond Index.

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