The Bloomberg Barclays U.S. Aggregate Index, a proxy for core bond performance, lost 1.5% for the quarter—its first negative quarterly return in over a year—while the intermediate-term bond Morningstar Category was down a more modest 1.3%. Funds with limited exposure to investment-grade credit held up better, as did those with exposure to non-U.S securities, given a weakening dollar and more robust global growth projections. As interest rates continued their ascent, funds with lower duration, a measure of interest-rate risk, also benefited. The positioning of Loomis Sayles Investment Grade Bond (LSIIX) (with a Morningstar Analyst Rating of Gold), with its combination of lower duration, high-yield holdings, and non-U.S. credit and currency exposures, elevated its performance above 95% of unique intermediate-term category peers, as it gained a modest seven basis points for the quarter.
Monetary Policy Stays the Course
True to its communications, the Federal Reserve continued its policy of a slow but steady tightening of the money supply, even after a change to its chairmanship. After a quarter-point rate rise in December, Janet Yellen maintained the 1.25% interest rate for January before departing the Federal Reserve. Her successor, Jerome Powell, assumed chairmanship responsibilities on Feb. 5, and in his first Federal Open Market Committee address on March 21, announced another quarter-point rise in rates, citing continued strength in U.S. economic fundamentals as an impetus.
Emory Zink does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.