1084 Days & Counting

In the realm of fixed-income investments, the Bloomberg U.S. Aggregate Bond Index (AGG) continues to grapple with the lingering effects of the 2022 drawdown. As of July 26, 2023, the drawdown has persisted for a staggering 1084 days, leaving investors still approximately 15% away from breaking even.

While equities have managed to return to a bull market since bottoming out, the road to recovery for public investment-grade bonds remains slow and painful, with the AGG generating a meager 2% return in the first half of the year. Compounding the challenge, the AGG faces potential pain from any additional interest rate hikes. This stems from the fact that the index still holds a considerable number of older securities acquired during the previous rate regime, which come with lower coupons. Consequently, these lower coupon bonds might struggle to offer enough support to offset an increase in yields, as highlighted by the AGG’s current yield of 4.75% compared to the 5.1% yield seen in cash/money markets. On a positive front, the aftermath of 2022 has left bond prices at appealing levels. This creates an opportunity for investors as bonds possess the potential for upside appreciation, a benefit that cash investments may not offer.