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