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A fund that mirrors the performance of the $55 trillion U.S. bond market was trading on Thursday on the cusp of its lowest close since 2008.
A sharp selloff in the roughly $25 trillion Treasury market has been triggering rippled effects in the broader $55 trillion U.S. bond market, putting shares of the iShares Core U.S. Aggregate Bond ETF
AGG
on the doorstep of its lowest close since October 2008, according to Dow Jones Market Data.
Shares of the fund were edging up less than 0.1% on Thursday at about $93.90 a share, according to FactSet, after previously falling to $93.60. Any close at that level would cement the ETF’s lowest finish since Oct. 13, 2008, when it ended at $91.82, according to Dow Jones Market Data.
The ETF matters because it tracks the closely followed U.S. Bloomberg Aggregate Bond Index, the main gauge of performance for investment-grade bonds. It also is the index all fixed-income investors strive to beat each year.
“I would say it’s edgy,” said Mike Sanders, head of fixed income at Madison Investments, of the tone of the bond market Thursday, as some calm was being restored to longer-duration bonds. “The bond market finally realized the Fed is serious about keeping rates higher.”
The Bloomberg “AGG” is composed of longer bonds, giving the index a duration of six years. Its total return was -1.4% on the year through Thursday, according to FactSet, but on pace for a -15.5% three-year return.
The recent selloff has been more acute for funds invested in longer-duration bonds, with the popular iShares 20+ Year Treasury Bond ETF
TLT
down 11.4% on the year through Thursday.
“You can still have positive total returns in the intermediate space, which speaks to the back-end in interest rates rising as much as they have,” said Sanders, a manager of the firm’s core bond fund and two exchange-traded funds.
Front-end Treasury bills
BX:TMUBMUSD03M,
on the hand, have remained relatively steady around the 5.5% yield range, including after Federal Reserve Chairman Powell last week sparked a selloff in longer 10-year Treasury
BX:TMUBMUSD10Y
securities by indicating the central bank’s policy rate might be cut only two times next year, instead of the four times expected previously.
The Fed last week also held its policy rate steady at a 5.25%-5.5% range, the highest in 22 years.
“I wouldn’t be bailing on fixed-income now,” Sanders said. “You’ve taken pain, if you will. But think about where we are starting at. It doesn’t take much of a move down in interest rates to recoup all of that performance, plus clip a coupon.”
U.S. stocks also have been under pressure for most of this week but were edging higher Thursday, with the Dow Jones Industrial Average
DJIA
up about 200 points, or 0.6%, the S&P 500 index
SPX
1% higher and the Nasdaq Composite Index
COMP
up 1.3%.
