Home etftrends.com BondBloxx Monthly Update – September 2023

BondBloxx Monthly Update – September 2023

  • Fixed income markets slumped in September, as the Federal Reserve (“Fed”) raised their outlook for the Federal Funds rate for the next 2 years, and fixed-income investors adopted a “higher for longer” mindset. Equity markets sold off nearly 5.0% and credit spreads widened as volatility rose across bond and equity markets.
  • The Fed left the Federal Funds rate unchanged (5.50% upper range) at September’s meeting, reiterated their commitment to a 2.0% inflation rate, and released their quarterly “DOTS” projection, raising their rate guidance by +50 basis points for 2023 and 2024, to 4.625% and 3.375%, respectively.
  • Asset classes with higher yields and lower duration led returns for the most recent time periods. For example, U.S. high yield and emerging markets debt (“EMD”) have returned +0.5% and -0.4% for the third quarter, respectively, while the index of broad investment grade bonds (“AGG”) has returned -3.2%. This pattern is enhanced for the year-to-date period, with high yield and EMD strongly in positive territory while most of fixed income is generating negative total return performance.
  • Globally, while developed countries continue to battle inflation with higher rates, several emerging economies have started lowering rates in response to weaker growth, and estimates for growth are declining for China, with the World Bank lowering their 2024 GDP forecast for China to +4.4% growth in 2024.
  • Led by oil prices, commodity prices started to fall near month-end, as high gasoline prices at the pump started to impact demand. Nonetheless, OPEC and Russia continue to keep a tight rein on production.

September by the Numbers

Chart 1

Chart 2

Chart 2-4

Table 1

Table 1-Oct-05-2023-05-49-52-6199-PM

Chart 1, 2 and Table 1 Sources: ICE Data Services, JP Morgan, Bloomberg | Data as of 9/30/2023

Glossary and Index Definitions

  • Credit Spread: the difference in yield between a debt security and its benchmark measured in basis points
  • OAS: Option Adjusted Spread. For a bond, the option-adjusted spread is the measurement of the spread between the bond and the underlying government yield curve. For an Index, the average of its constituent security government option-adjusted spreads, weighted by full market value.
  • The Bloomberg U.S. Aggregate Index is a broad-based flagship benchmark that measures the investment grade, US-dollar-denominated, fixed-rate taxable bond market.
  • The Bloomberg A Corporate Index measures the A-rated, fixed-rate, taxable corporate bond market.
  • The Bloomberg BBB Corporate Index measures the BBB-rated, fixed-rate, taxable corporate bond market.
  • The Bloomberg Municipal Bond Index covers the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prefunded bonds.
  • The Bloomberg US Mortgage-Backed Securities Index tracks fixed-rate agency mortgage-backed pass-through securities guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).
  • The Bloomberg U.S. Treasury Target Duration Indices are a suite of 8 indices designed to target a specific duration using US Treasury securities. The 8 durations targeted are 6 Month, 1 Year, 2 Year, 3 Year, 5 Year, 7 Year, 10 Year and 20 Year.
  • The ICE BofA U.S. High Yield Index tracks the performance of U.S. dollar-denominated, below investment grade-rated corporate debt publicly issued in the U.S. domestic market.
  • The ICE BofA Broad Market Index measures the performance of U.S. dollar-denominated, investment grade debt securities, including U.S. Treasury notes and bonds, quasi-government securities, corporate securities, residential and commercial mortgage-backed securities and asset-backed securities.
  • The ICE BofA U.S. Corporate Index tracks the performance of U.S. dollar-denominated investment grade rated corporate debt publicly issued in the U.S. domestic market.
  • The ICE BofA U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government in its domestic market.
  • The ICE BofA Current 10-year U.S. Treasury Index is a one-security index comprised of the most recently issued 10-year U.S. Treasury note.
  • The ICE Diversified U.S. Cash Pay High Yield Rating Category Indices contain all securities in the ICE BofA U.S. Cash Pay High Yield Index, broken down by their rating categories: BB1-BB3, B1-B3, and CCC1-CCC3. Index constituents are capitalization-weighted, based on their current amount outstanding.
  • The ICE Diversified U.S. Cash Pay High Yield Sector Category Indices contain all securities in the ICE BofA U.S. Cash Pay High Yield Index, broken down by industry including: Industrials; Telecom, Media & Technology; Healthcare; Financial & REIT; Energy; Consumer Cyclicals; Consumer Non-Cyclicals. Index constituents are capitalization-weighted, based on their current amount outstanding.
  • The J.P. Morgan 1-10 Year Emerging Markets Sovereign Index tracks liquid, U.S. dollar emerging market fixed and floating-rate debt instruments issued by sovereign and quasi sovereign entities. The EMBIGDL 1-10 Index is based on the long-established J.P. Morgan EMBI Global Diversified Index and follows it methodology closely, but only includes securities with at least $1 billion in face amount outstanding and average life below 10 years.
  • The NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market, including over 2,500 companies, An investment can not be made in an index.
  • The Russell 2000 Index is a small-cap U.S. stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index, which is a capitalization-weighted stock market index that seeks to be a benchmark of the entire U.S. stock market.
  • The S&P 500 Index tracks the performance of 500 leading large-cap U.S. equities and covers approximately 80% of available market capitalization..

There are risks associated with investing, including possible loss of principal. Fixed income investments are subject to interest rate risk; their value will normally decline as interest rates rise. Fixed income investments are also subject to credit risk, the risk that the issuer of a bond will fail to pay interest and principal in a timely manner, or that negative perceptions of the issuer’s ability to make such payments will cause the price of that bond to decline. Securities that are rated below investment-grade (sometimes referred to as “junk bonds”) be deemed speculative, may involve greater levels of risk than higher-rated securities of similar maturity and may be more likely to default. Investing in mortgage- and asset ­backed securities involves interest rate, credit, valuation, extension and liquidity risks and the risk that payments on the underlying assets are delayed, prepaid, subordinated or defaulted on.

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Decisions based on information contained in this presentation are the sole responsibility of the intended recipient. You should obtain relevant and specific professional advice before making any investment decision. This information is subject to change without notice.

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Bond ratings are grades given to bonds that indicate their credit quality as determined by private independent ratings services, such as Standard & Poor’s, Moody’s and Fitch. These firms evaluate a bond issuer’s financial strength or it’s ability to pay a bond’s principal and interest in a timely fashion. Ratings are expressed as letters ranging from ‘AAA’, which are the highest grade, to ‘D’, which is the lowest grade.

Index performance is not illustrative of fund performance. One cannot invest directly in an index. Please visit bondbloxxetf.com for fund performance.

Index performance is not illustrative of fund performance. One cannot invest directly in an index. Please visit bondbloxxetf.com for fund performance. 

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