- Less than three quarters into 2019, the Bloomberg Barclays U.S. Aggregate Bond Index, a proxy for traditional core fixed income investments, has already generated an equity-like return. Its 9% plus total return through August 30 is nearly triple its annual average from 2010–2018 and well above those of the prior two decades.1
- Total returns for bonds are generated from two sources: income from regular interest payments and changes in price. As the chart highlights, the vast majority of 2019’s return came from price appreciation (price return) as the 10-year U.S. Treasury yield declined sharply this year, reaching lows not seen since 2016. (As a reminder, a bond’s price rises as interest rates decline.)
- Rising prices bode well for investors seeking total return, yet many investors turn to their fixed income portfolios as a source of income. As interest rates plummeted this year, the income generated by a traditional fixed income portfolio has steadily declined. The income return on the Barclays Agg is below 2.0% through August 30 compared to nearly 7% in the 1990s.2 The Index’s yield has fallen from 3.7% in November 2018 to approximately 2.1% today.2
- Today’s historically low interest rates will continue to make it difficult for investors to find competitive levels of income. Additionally, with the 10-year Treasury hovering near 1.5%, investors may not be able to rely on falling interest rates to boost their bonds’ total returns.
1 Bloomberg Finance L.P., as of August 30, 2019.
2 Based on yield-to-worst as of September 5, 2019.
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