Charts of the Week
Fixed Income Sector Performance (Total Return as of 12/31/2016)
Chart of the Week for January 27, 2017 - February 2, 2017
The fixed income market includes many different types of securities, and their comparative performance can vary substantially. The chart above compares the performance of eleven major fixed income sectors for the one year periods ended December 31, 2016 ("current year") and December 31, 2015 ("prior year"). All eleven sectors shown produced positive returns in the current year compared to six of the eleven sectors shown with positive returns in the prior year.
U.S. returns were generally higher in the current year compared to the prior year as a moderately expansive U.S. economy offset higher interest rates across all maturities. U.S. High Yield was the best performing sector in the current year (17.13%) as rising energy prices positively impacted issuers in the sector. U.S. Long-Term Corporate was the other sector with double digit returns (10.97%) as corporate issuance was strong throughout the year and investors chose Corporate Bonds over Government bonds as the economy improved tightening credit spreads. Long-Term outperformed Short-Term in both the Corporate and Government sectors for the year.
Emerging Markets posted its strongest returns since 2012 in the current period (9.88%) as higher commodity prices and accommodative Central Bank policies helped bond prices. Central Bank policies in Europe and Japan also helped the Global sector returns (2.09%) in the face of political events such as the UK Brexit vote and generally weak Japanese economic indicators.
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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