The guiding star for many bond investors is starting to flicker.
The Barclays U.S. Aggregate
Bond Index, known as "the Agg"—which tracks the broader debt market
the way the Standard & Poors-500 follows stocks—declined 0.12% in the first
quarter, its first negative return in that period since 2006.
And with many large investors yanking funds tied to the Agg, the index's
flagging popularity is having repercussions for how hundreds of billions of
dollars are allocated in fixed-income portfolios.
The move is perhaps the most stark indication yet that the safest bonds
are scaring investors.
A prime reason for the Agg's changing fortunes is that U.S. Treasurys and
government-backed mortgage debt have gained a larger share of the index,
following several years of record U.S. debt issuance.
Treasurys, long the gold standard of the debt markets, have in recent
years lost their allure as income-starved investors favor riskier,
higher-yielding securities such as "junk" bonds and loans.
Since 1976, the Agg has posted an annualized return of 7.68%.
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