• Less than three quarters into 2019, the Bloomberg Barclays U.S. Aggregate Bond Index, a proxy for traditional core fixed income investments, has already generated an equity-like return. Its 9% plus total return through August 30 is nearly triple its annual average from 2010–2018 and well above those of the prior two decades.1
  • Total returns for bonds are generated from two sources: income from regular interest payments and changes in price. As the chart highlights, the vast majority of 2019’s return came from price appreciation (price return) as the 10-year U.S. Treasury yield declined sharply this year, reaching lows not seen since 2016. (As a reminder, a bond’s price rises as interest rates decline.)
  • Rising prices bode well for investors seeking total return, yet many investors turn to their fixed income portfolios as a source of income. As interest rates plummeted this year, the income generated by a traditional fixed income portfolio has steadily declined. The income return on the Barclays Agg is below 2.0% through August 30 compared to nearly 7% in the 1990s.2 The Index’s yield has fallen from 3.7% in November 2018 to approximately 2.1% today.2
  • Today’s historically low interest rates will continue to make it difficult for investors to find competitive levels of income. Additionally, with the 10-year Treasury hovering near 1.5%, investors may not be able to rely on falling interest rates to boost their bonds’ total returns.

1 Bloomberg Finance L.P., as of August 30, 2019.
2 Based on yield-to-worst as of September 5, 2019.

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.