Charts of the Week
Fixed Income Sector Performance (Total Return as of 3/31/15)
Chart of the Week for April 24, 2015 - April 30, 2015
The fixed income market includes many different types of securities, and their performance can vary substantially among these types. The chart above compares the performance of eleven major fixed income sectors for the one-year periods ended March 31, 2015 ("current year"-blue bars above) and March 31, 2014 ("prior year"-gold bars above). Ten of the eleven fixed income sectors produced positive returns for the current year. In contrast, nine of the eleven sectors rose in the prior year.
The U.S. Federal Reserve ("Fed") ended its bond buying program in the third quarter of 2014 and also revised its statements regarding its forward-looking monetary policy in the current year. These Fed actions and a strengthening U.S. economy generally should have led to higher interest rates. However, interest rates fell over the last year based on reported and forecasted economic conditions, with long-term bonds benefitting the most in the current period.
High Yield was the leading sector shown in the prior year. For the current year, High Yield produced a positive return, but its return ranked 8th out of the eleven sectors shown. Many energy companies issue high yield debt and the value of those bonds fell, with concerns over falling oil prices over the last year. The overall return in the current year for High Yield was still positive as other areas outside energy earned positive returns.
Global was the only sector shown to have a negative return in the current year, with the strengthening U.S. dollar being the primary detractor. In local currency terms, Global produced a positive return in the current year.
Performance fluctuates over time and returns depend in part on the market environment, which is hard to predict. Changes in both actual and expected interest and inflation rates can materially impact fixed income investments. Also, investors should note that even U.S. Government securities can decline in value and investing in sectors such as High Yield or Emerging Markets involve additional risk.
When making investment decisions, prudent investors should invest based on their own circumstances, taking into consideration their goals, investment experience, time horizon, and risk tolerance.
Posted by: sarah_oz@yahoo.com
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