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Chart of the week

Traditional bond returns sputter as rates rise

Barclays Agg quarterly returns vs. 10-year Treasury yield

June 15, 2018 | 1 minute read
Barclays Agg quarterly returns vs. 10-year Treasury yield
  • The Federal Reserve’s 25 bps rate hike came as expected this week.1 Yet the FOMC raising its median estimate from three to four rate hikes this year lent a more hawkish tone to the Fed’s actions.2
  • Ten-year U.S. Treasury yields briefly jumped above 3% immediately following Wednesday’s rate hike.3 Yields settled later in the day, but remain toward the upper end of the 2.8%–3.1% band inside which they’ve traded for much of 2018.3
  • Compared to one year ago, yields on the 10-year are approximately 81 bps higher today while 2-year yields are up approximately 124 bps.3,4
  • While rates remain low relative to historical standards, they have been gradually rising for nearly two years. This broader environment has tempered returns on traditional fixed income investments in both recent quarters and recent years.
  • The Bloomberg Barclays U.S. Aggregate Bond Index, a benchmark that measures the performance across the traditional fixed income investment landscape, has produced an average return of just 0.3% in the nearly three and a half years since January 2015. Year to date, the index has returned -2.1%.5
  • We’ve noted in the past that many analysts don’t expect investment returns in the coming decade to be as strong as those of the past 10 years. Within this environment, it could become increasingly important for investors to find alternative sources of return and portfolio diversification outside the scope of traditional investments.

The chart of the week and any accompanying data is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The chart of the week is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such market commentary. The chart of the week should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the chart of the week or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.

This information is educational in nature and does not constitute a financial promotion, investment advice or an inducement or incitement to participate in any product, offering or investment. FS Investments is not adopting, making a recommendation for or endorsing any investment strategy or particular security. All views, opinions and positions expressed herein are that of the author and do not necessarily reflect the views, opinions or positions of FS Investments. All opinions are subject to change without notice, and you should always obtain current information and perform due diligence before participating in any investment. FS Investments does not provide legal or tax advice and the information herein should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact any investment result. FS Investments cannot guarantee that the information herein is accurate, complete, or timely. FS Investments makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information.

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