The Lost Year: Investor Frustration in High-Quality Fixed Income

LPL Research recently published an interesting article on the frustration investors have been experiencing with investment in high-quality fixed income. With interest rates being suppressed in the summer of 2016, investors were not rewarded for staying the course and maintaining investment in investment grade bonds. Despite the continued pressure on high-quality fixed income, the fact remains that high-quality bonds still hold a place in a diversified portfolio, as they have historically provided a way to mitigate losses in a market downturn. Below are some key takeaways from the article. You can read the entire article by clicking on the link below.

Key Takeaways

  • The broad high-quality bond universe has produced a slightly negative return over the last year due to a pickup in rates from the depressed levels of last summer.
  • Even with the headwinds, there have been pockets of success over the last year and opportunities remain.
  • Despite the potential for ongoing pressure in high-quality fixed income, it remains a critical tool in diversified, balanced portfolios.

To read the entire article: Bond_Market_Perspectives_The Lost Year

 

 

IMPORTANT DISCLOSURES
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To
determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no
guarantee of future results. All indexes are unmanaged and cannot be invested into directly.
The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Because of their narrow focus, specialty sector investing, such as healthcare, financials, or energy, will be subject to greater volatility than investing more broadly
across many sectors and companies.”
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise, and bonds are subject to
availability and change in price.
Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed
rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate, and credit risk as well
as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
Mortgage-backed securities are subject to credit, default, prepayment risk that acts much like call risk when you get your principal back sooner than the stated
maturity, extension risk, the opposite of prepayment risk, market and interest rate risk.
High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.
Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical
and regulatory risk, and risk associated with varying settlement standards.
Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.
Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though
GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that
occur within a defined territory.
Consumer Price Inflations is the retail price increase as measured by a consumer price index (CPI).
INDEX DEFINITIONS
The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate
taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS,
and CMBS (agency and non-agency).
Bloomberg Barclays High Yield Bond Index is an unmanaged index of corporate bonds rated below investment grade by Moody’s, S&P or Fitch Investor Service.
The index also includes bonds not rated by the ratings agencies.
The Bloomberg Barclays U.S. Mortgage Backed Securities (MBS) Index tracks agency mortgage backed pass-through securities (both fixed rate and hybrid ARM)
guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
The Bloomberg Barclays U.S. Corporate Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate, taxable
corporate bond market.
The S&P/LSTA U.S. Leveraged Loan 100 Index is designed to reflect the performance of the largest facilities in the leveraged loan market

This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and
makes no representation with respect to such entity.