Long-term interest rates declined in the quarter on weak economic statistics, despite the Feds tapering of its 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 10-year U.S. Treasury yields fell 30 basis points (0.3%).
Against this backdrop, the Funds return of 2.28% for the quarter outperformed the benchmark. Security selection was the largest contributor to the Funds strong relative performance. Overweight positions in corporate bonds and commercial mortgage-backed securities, and underweight positions in mortgages and U.S. Treasuries also were significant contributors. The largest detractor from performance relative to the benchmark was the positioning of assets along the yield curve.
If you're a conservative, income-oriented investor who wants higher current income than that generally offered by the U.S. Government Fund and you're willing to assume moderately more risk in exchange, you may find this Fund suitable. This Fund can also be an appropriate choice for investors who want to broaden and diversify their fixed income portfolio.
- Invest primarily in investment-grade domestic debt obligations with an average maturity, under normal circumstances, between three and 15 years, but may own, to a limited extent, securities of foreign issuers and non-investment-grade debt.
- 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, mortgage-related and corporate securities) that we believe have the potential to provide a favorable return.