Despite anxiety over an ever-lengthening credit cycle, contentious trade negotiations, and tightening monetary policy, U.S. fixed-income markets remained resilient over the summer. The Bloomberg Barclays U.S. Aggregate Bond Index delivered a meager 0.02% return in the third quarter. The most rate-sensitive sectors suffered modest losses as yields pushed higher, with the index’s U.S. Treasury and mortgage components each losing 0.59% and 0.12%, respectively, over that period. Investment-grade credit provided a countering lift by generating 0.97% following two quarters of losses.
The broad intermediate-term bond Morningstar Category average returned 20 basis points in the third quarter, but across its constituents, those with shorter durations (a measure of interest-rate sensitivity) and higher allocations to U.S. corporate credit--in particular mid- and lower-quality tiers--generally outperformed. For example, Gold-rated Loomis Sayles Investment Grade Bond (LSIIX) has one of the shortest durations in the category as well as a noticeably higher allocation to below-investment-grade corporate credit; this positioning boosted performance to 0.96% over that period. In contrast, Silver-rated JPMorgan Core Bond (JCBUX), a more securitized-centric option with an up-in-quality bias and longer duration, generated 0.03%, lagging its more intrepid peers.
Emory Zink does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.