Charts of the Week
Fixed Income Sector Performance (Total Return as of 3/31/16)
Chart of the Week for April 29, 2016 - May 5, 2016
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, 2016 ("current year"-dark blue bars above) and March 31, 2015 ("prior year"-light blue bars above). Nine of the eleven fixed income sectors produced positive returns for the current year. Similarly, ten of the eleven sectors rose in the prior year.
The Federal Open Market Committee ("FOMC") of the U.S. Federal Reserve increased the target rate range for the federal funds rate in December 2015, and there has been much speculation about subsequent increases. However, through the FOMC March 2016 meeting there has not been another increase. Over the current year, interest rates generally fell prior to the FOMC announcement, rose slightly after the announcement, and fell during the first quarter of 2016.
Global led in current year performance (4.57%), rebounding from its negative return of the prior year (-3.66%), helped by increased bond purchasing in Europe as part of their central bank quantitative easing plan. Emerging Markets also had a positive return (3.49%) in the current year, as investors were active in buying newly issued sovereign and corporate debt in several countries. For U.S sectors, Municipal had the best return (3.98%), followed by Long-Term Government (2.80%) and Mortgage-Backed Securities (2.43%). Long-Term Corporate (-1.34%) and High Yield (-3.69%) both reported negative returns in the current year after positive returns in the prior year, as Long-Term Corporate yields began to rise in the prior year in anticipation of an FOMC increase, and High Yield bonds were impacted by the effect of lower oil pries on energy issuers, many of which issue High Yield Bonds.
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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