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Second-Quarter in Bond Funds: Risk Pays Off

Brexit-related volatility was not enough to take the sheen off an otherwise strong quarter for risky assets.

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The biggest news of the second quarter came in the final days of June, when voters in the United Kingdom unexpectedly voted to leave the European Union. However, while the Brexit vote dominated headlines and led to sharp losses in the equity markets, the initial impact on the fixed-income markets has been relatively muted. To be sure, Treasuries rallied sharply in the days following the vote, but by the end of the day on Tuesday, June 28, the yield on the 10-year Treasury stood at 1.46%, not far off levels seen earlier in the month.

Meanwhile, riskier corners of the bond market, including high-yield and emerging-markets bonds and currencies, suffered losses on Friday and Monday but bounced back on Tuesday. The British pound fell sharply, although this had a limited impact on most core bond portfolios, which rarely have concentrated exposures to individual nondollar currencies.

Sarah Bush does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.