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Assessing the Relative Value of the Barclays Agg
Historical Yield per Unit of Duration
4%
3%
0.3 %
12/31/2012
2%
1%
0%
1976
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Currently, the Barclays Agg is the least attractive it has ever been as measured by yield per unit
of duration. Given the Fed’s recent pledge to keep rates low at least until specific unemployment
or inflation targets are reached, the Index’s unattractiveness from an investment standpoint is
likely to continue in the near term. Source: Barclays. Data as of 12/31/2012.
Fiscal Policy Reconfiguring
Composition of Barclays Agg
Since its creation in 1986, the Barclays U.S.
Aggregate Bond Index (the “Index” or the “Agg”)
has become the most widely used proxy for the U.S.
bond market with over $2 trillion in fixed-income
assets managed to it. Inclusion in the Agg requires
that securities be U.S. dollar-denominated,
investment-grade rated, fixed-rate, taxable, and
meet minimum par amounts outstanding. In 1986,
the fixed-income landscape primarily consisted of
U.S. Treasuries, agency bonds, agency MBS, and
corporate bonds – all of which met these inclusion
criteria. Therefore the Agg was a useful proxy for
the universe of fixed-income assets. However,
the fixed-income universe has evolved over the
past twenty years with the growth of sectors
such as asset-backed securities and municipals.
Over the past five years, the composition of the
Barclays Agg has been altered by the massive
volume of Treasuries issued in response to the
U.S. financial crisis.
The sheer glut of Treasuries and their increasingly
dominant representation in the Index is a trend
unlikely to reverse anytime soon. The need
to fund government shortfalls – present and
future – is astonishing. The U.S. Treasury debt
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