U.S. Bond Market

Key Facts

  • total return combining interest payments and price action
  • available yields

Summary

U.S. bonds are serving as the fixed-income safety-net in many investor’s portfolios. Therefore, the health of this asset class is of high significance.

The Aggregate Bond Market‘s total return is a good proxy for the bond funds many investors use in their portfolios.

20+-Year Treasury Bonds, as well as Treasury bonds with shorter durations, are often used as a safe-haven for investors. When turbulent stock markets initiate a flight-to-quality, this asset class often gains significantly, resulting in an overall negative correlation to the stock market.

Investment-grade Corporate Bonds provide higher yields than treasuries at the expense of higher credit risk. This asset class has a very low correlation to the stock market, which might increase in times of recession.

The Federal Funds Rate is the interest rate at which banks lend reserve balances to other depository institutions. The Federal Reserve Bank sets this rate as part of its monetary policy. It ultimately influences the yields of all bonds, however only indirectly and with often long delays.

The market participants set the yields of Corporate Bonds and U.S. Treasuries through supply and demand. Bond valuation formulas connect yields with bond prices: Dropping yields lead to gains in price while increasing yields lead to falling bond prices. This effect becomes stronger with longer maturities.

Performance

The chart above shows the indexed performance. The table below shows the performance metrics over the past 12-months period: