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Bond Funds Hold Their Own in the First Quarter

Despite a Fed rate hike, most fixed-income funds have posted gains so far this year.

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The bond markets enjoyed a relatively benign opening to 2017, with many fixed-income funds enjoying modest gains after a rocky fourth quarter of 2016. Although the Fed hiked rates for only the third time in more than 10 years, all fixed-income Morningstar Categories were in positive territory over the first quarter.

Risk On
The riskiest bonds outperformed sharply, with particularly strong performances coming from funds in the emerging-markets bond and emerging-markets local-currency bond categories. Gains in the Mexican peso, which had struggled since 2015 and plunged following the U.S. election, helped buoy many funds, despite continued tension between Mexico and the United States. Other key emerging markets, including Brazil--which has encouraged investors with recent reforms--and Russia, also surged. World-bond funds with significant exposure to emerging-markets debt, including  Templeton Global Bond (TPINX), benefited from that strength.

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