Interest-rate-sensitive market segments continued to lag during the quarter, leading to underperformance for government bonds and longer-term issues. The U.S. Treasury yield curve steepened, with the yield differential between two- and 30-year maturities rising by 22 basis points (0.22%), and the difference between two- and 10-year yields climbing by 36 basis points (0.36%). Yields on two-, 10- and 30-year issues rose by six (0.06%), 42 (0.42%) and 28 basis points (0.28%), respectively, during the quarter.
Longer-term bonds remained volatile due to the prospect that the U.S. Federal Reserve would begin to reduce the extent of its bond-buying program. In December, the Fed announced that it would start trimming its monthly asset purchases by $10 billion per month to $75 billion in January, citing the improving job market. At the same time, the Fed made clear its intention to keep short-term rates at their current low levels for an extended period, which helped to support the performance of short-term bonds even as longer-term issues weakened.
If you are a long-term, income-oriented investor who is looking to diversify your investments by gaining broad exposure to the U.S. bond market, then this Fund may be right for you. It offers a diversified portfolio of bond securities approximating the Lehman Brothers U.S. Aggregate Index.
- Passively managed in an effort to replicate the performance and composition of the Barclays U.S. Aggregate Bond Index.
- Gain broad exposure to the U.S. Treasury, government agency, investment-grade corporate bond, mortgage- and asset-backed sectors of the fixed income markets.
- Provide investors with a way to gain broad exposure to U.S. bond market.