Weak economic numbers drove long-term interest rates lower in the quarter, despite a tapering in the Feds asset purchase program. In the investment-grade corporate bond market, issuers took advantage of tight credit spreads and declining interest rates as new issuance soared to an all-time first-quarter high. The flood of supply was well received by investors. Large inflows into fixed-income strategies left managers with money to be put to work. Credit spreads tightened throughout the quarter on the strong demand, even as the 10-year U.S. Treasury yield declined by 30 basis points (0.3%).
Against this backdrop, the Funds return of 1.89% for the quarter slightly outperformed the benchmark. The largest positive contribution to relative performance came from overweight positions in corporate bonds and commercial mortgage-backed securities, and underweights to mortgages and U.S. Treasuries. Security selection represented another significant contributor to relative performance. The largest detractor from relative return was the positioning of assets along the yield curve.
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 while eliminating your exposure to non-investment grade debt then this Fund may be right for you. It offers a diversified portfolio of bond securities primarily invested in U.S. investment-grade debt.
- Invest primarily in domestic investment-grade debt obligations with an average maturity, under normal circumstances, between three and 15 years.
- Buy and sell securities using a relative value approach that employs models that analyze and compare expected returns and assumed risks.
- Emphasize securities and types of securities (such as Treasury, agency, asset-backed, mortgage-related and corporate securities) that we believe have the potential to provide a favorable return.