For Bond Investors, Low Expectations in a Low-Yield World
- 6 years ago
For Bond Investors, Low Expectations in a Low-Yield World
It all makes it less likely that core bond funds — those
that focus on high-quality securities — will be able to match the 3.7 percent average gain for 2017, which was 1.5 percentage points ahead of the inflation rate.
A 2 percent inflation rate would most likely just nudge long-term rates higher, he said, adding
that he expects a “slow and low trajectory” for long-term rates.
The 2.5 percent recent yield for the Vanguard Short-Term Corporate Bond Index fund is about
half a percentage point more than the yield for comparable short-term Treasuries.
With an expectation that long-term rates will not venture far from current levels, the Western Asset Core Plus Bond fund currently has an average duration — a measure of risk to changing interest rates —
that is slightly higher than the six-year norm for the benchmark Bloomberg Barclays U. S.
Aggregate Bond index.
But the aggregate index will also be very sensitive to Federal Reserve interest rate increases, as 37
percent of the index is invested in Treasuries and another 27 percent in government agency bonds.
It all makes it less likely that core bond funds — those
that focus on high-quality securities — will be able to match the 3.7 percent average gain for 2017, which was 1.5 percentage points ahead of the inflation rate.
A 2 percent inflation rate would most likely just nudge long-term rates higher, he said, adding
that he expects a “slow and low trajectory” for long-term rates.
The 2.5 percent recent yield for the Vanguard Short-Term Corporate Bond Index fund is about
half a percentage point more than the yield for comparable short-term Treasuries.
With an expectation that long-term rates will not venture far from current levels, the Western Asset Core Plus Bond fund currently has an average duration — a measure of risk to changing interest rates —
that is slightly higher than the six-year norm for the benchmark Bloomberg Barclays U. S.
Aggregate Bond index.
But the aggregate index will also be very sensitive to Federal Reserve interest rate increases, as 37
percent of the index is invested in Treasuries and another 27 percent in government agency bonds.