The two big bond stories of 2016 were the sharp reversal in the path of bond yields midyear and an impressive rally in corporates. Against the backdrop of plunging oil prices, concerns about global growth, and Brexit, bond yields shifted down during the first part of 2016. By the third quarter, though, bond yields were edging upward, a trend that accelerated following the election. The Fed hiked rates by 25 basis points in mid-December, and most bond funds were in negative territory for the fourth quarter.
After a rough 2015 and tough start to 2016, meanwhile, credit rallied through much of the rest of the year, with particularly strong performance in energy-related names. Many funds that did poorly in 2015’s rocky credit markets performed well in 2016 as risk paid off. The best-performing sector in 2016 was high-yield bonds, with the Bank of America High Yield Master II Index gaining 17.5% for the year, compared with a less than 3% gain for the Bloomberg Barclays U.S. Aggregate Bond Index.
To view this article, become a Morningstar Basic member.
Cara Esser does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.