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Historically, when core bonds out-yield short term rates they have delivered attractive returns
What the Chart Shows:
The relationship between the Federal Funds rate and core bonds, as measured by the Yield to Worst (YTW)Footnote1 on the Bloomberg U.S. Aggregate Index, since 2000.
What It Means for Investors:
When core bonds regain their yield advantage over cash for a sustained periodFootnote2 , they historically go on to outperform cashFootnote3 by 3.9% the following year on average. This can be significant for bond investors.
Past performance is not a guarantee or a reliable indicator of future results.
1 Yield to Worst (YTW) is the estimated lowest potential yield that can be received on a bond without the issuer actually defaulting. Core Bond YTW is represented by the Bloomberg U.S. Aggregate Index.Return to content↩
2 Sustained periods are defined as periods where the U.S. Aggregate Index's yield advantage is positive and uninterrupted for more than a day over the following year.Return to content↩
3 Cash performance is represented by the FTSE 3-Month Treasury Bill Index.Return to content↩
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Disclosures
All investments contain risk and may lose value. Investors should consult their investment professional prior to making an investment decision.
Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and low interest rate environments increase this risk. Reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed.
Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. Different types of investments involve varying degrees of risk. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those shown.
Bloomberg U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis. FTSE 3-Month Treasury Bill Index is an unmanaged index representing monthly return equivalents of yield averages of the last 3 month Treasury Bill issues. It is not possible to invest directly in an unmanaged index.
PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the current opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world.
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