Most fixed-income indexes continued to decline over the course of the second quarter as interest rates rose and investment-grade corporate credit spreads widened. However, with its shorter duration and higher correlation to economic growth, the high-yield sector was one of the few that registered gains this quarter.
Morningstar's Core Bond Index, our broadest measure of the fixed-income universe, declined 0.17% in the second quarter and has fallen 1.70% year to date. The decline was mainly driven by the increase in interest rates across the entire yield curve but was also under pressure from widening investment-grade corporate credit spreads. Underlying the Core Bond Index, Morningstar's Short-Term Core Bond Index was able to post a small gain of 0.22% even as short-term rates rose to their highest levels in over a decade. This gain in the second quarter helped offset earlier losses, and this index is now down only 0.17% for the year. The Intermediate Core Bond Index rose 0.10% during the quarter but has dropped 1.19% year to date. With its longer duration and greater price sensitivity to interest rates, the Long-Term Core Bond Index fell by 1.11% this quarter and had registered a 4.25% loss this year as falling bond prices from rising rates more than offset the yield carry from the underlying bonds in this index.
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David Sekera does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.