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Chart of the week

As equities rallied in 2021, core fixed income fell

Core fixed income is on pace for its first negative year since 2013. Our chart looks at the Agg’s annual returns, why this year may be different.

December 17, 2021 | 2 minute read

Barclays Agg returns

Source: Bloomberg Finance L.P., as of December 15, 2021. Barclays Agg refers to the Bloomberg Barclays U.S. Aggregate Bond Index.

  • Stocks moved sharply higher following the Fed’s Wednesday meeting as investors apparently approved of the clarity the Fed provided to target rampant inflationary pressures. Core fixed income investments had the opposite reaction, with the Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Agg) falling -0.19% on Wednesday, adding to its decline earlier in the week.1
  • Equity and core fixed income markets’ divergent reactions to this week’s Fed meeting was illustrative of their performances throughout the year. Stocks have hit multiple all-time highs in 2021 while core fixed income investments faced significant challenges as prices declined amid rising rates and yields remained paltry.
  • Year to date, the Barclays Agg has returned -1.65% and is on track for its first negative annual return since 2013, another year when the 10-Year U.S. Treasury yield rose appreciably.1 Despite that similarity, the broader climate underlying core fixed income investments today is very different.
  • For one, both nominal and real interest rates are starting from a lower place today than they were in 2013 and inflation is significantly higher. Even if the Fed curbs inflation, fixed income would still face enormous challenges. Additionally, economic and policy uncertainty remain significantly higher today as COVID cases rise while the Fed looks set to begin a new rate hike cycle.
  • Amid this very murky outlook, alternative sources of income could remain at a premium well into the new year. Low yields continue to challenge core fixed income investments as they face significant downside risks if rates rise and little upside if rates fall.

  • As of December 15, 2021. Barclays Agg refers to the Bloomberg Barclays U.S. Aggregate Bond Index.

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