Bloomberg Agg monthly and annual return
Source: Bloomberg Finance, L.P., as of November 30, 2024.
- The return of the “40” in the traditional 60/40 portfolio has been welcome news for investors as the Bloomberg Aggregate Index has generated attractive returns through much of this year, driven by a steady decline in Treasury yields.
- Yet, core fixed income’s revival has come with a significant catch: It carries significantly more volatility than it did just a few years ago, calling into question the Agg’s traditional role within a portfolio as a ballast against volatile equities.
- Since the start of 2022, the Bloomberg Agg has moved an average of 2% per month, compared with an average of only 0.7% per month in 2015–2019.1 Notably, the index return has been flat over the last five years (-0.01%) amid significant interest rate volatility.1
- Higher long-term yields suggest higher-than-expected nominal returns. Yet, the volatility profile of bonds has been transformed by the Fed’s dual-sided monetary policy regime, as policymakers have to balance maximum employment with price stability in a way that had largely been absent during the last several decades. Further, elevated inflation pressures may diminish core fixed income’s real return profile.
- Against this backdrop, the case for alternative sources of income—as investors seek attractive growth and diversification potential—continues to be attractive.
