[TSP_Strategy] Fixed Income Sector Performance

 

Charts of the Week

Fixed Income Sector Performance (Total Return as of 9/30/17)

Chart of the Week for October 27, 2017 - November 2, 2017

The fixed income market includes many different types of securities and performance can vary substantially among them. The chart above compares the performance of 11 major fixed income sectors for the 1-year periods ended September 30, 2017 ("current year" - dark blue bars above) and September 30, 2016 ("prior year" - light blue bars above). Eight of the 11 fixed income sectors shown produced positive returns for the current year while all 11 sectors produced positive returns in the prior year.

Over the current year, there were three interest rate range increases from the U.S. Federal Reserve Open Market Committee (FOMC) that impacted fixed income markets. The overnight federal funds rate targeted range went from 0.25%-0.50% to 1.00%-1.25% and short-term treasury yields rose similarly. Intermediate- and long-term treasury yields rose in the fourth quarter of 2016 and have remained relatively flat in 2017. Since treasury yields rose more than other sectors, Government bonds across all maturities generally underperformed other sectors as Government (-1.56%) and Long-Term Government (-6.14%) were the worst performers in the current year. High Yield (8.88%) and Emerging Markets (4.70%) were the best performing sectors in the current year as tightening credit spreads and a strong stock market in the U.S. helped the High Yield sector and a generally lower U.S. dollar and strong demand for new issues helped the Emerging Markets sector. 

Over the prior year, there was only one interest rate range increase from the FOMC. Yields generally fell resulting in the positive returns in the prior year.

Performance fluctuates over time and 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.

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Posted by: sarah_oz@yahoo.com

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Neither the TSP Strategy group, nor individual members, are licensed or authorized to provide investment advice. Any statements made herein merely reflect the personal opinions of the individual group member. Please make your own investment decisions based upon your personal circumstances.

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