1. Money

2011 Bond Market Returns

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How did the bond market perform in 2011? The short answer: extremely well, almost anywhere you could have invested. The best performance in 2011 came from U.S. Treasuries and longer-term securities, but even the areas that lagged U.S. government bonds – such as corporate bonds and high yield bonds – nonetheless produced outstanding returns.

Learn more: How have bond market returns stacked up against stocks in the long term?

For more on what drove market performance in the past year, see the 2011 Bond Market Year in Review.

Here is a look at 2011 bond market returns by the numbers:

Overall U.S. Bond Market

  • Barclays U.S. Aggregate Bond Index : 7.84%
  • Barclays Aggregate 1-3 Year Index: 1.73%
  • Barclays Intermediate U.S. Aggregate Index: 5.97%

The Barclays U.S. Aggregate Bond Index measures the entire U.S investment-grade bond market. It had a weighting of about 53% in U.S. Treasuries at year-end, which was a substantial positive for its performance. Note that short- and intermediate-term bonds both underperformed the index, indicating that the bulk of the performance was generated by longer-term issues.

Government Bonds

  • Barclays U.S. Government Index: 9.02%
  • U.S. T-Bill 1 Year Index: 0.18%
  • U.S. T-Bill 3 Month Index: 0.05%
  • U.S. T-Bill 6 Month Index: 0.10%
  • 2-Year Note: 1.42%
  • Barclays 1-3 Year U.S. Government Index: 1.56%
  • Barclays U.S. Government Intermediate Index: 6.08%
  • Citi 7-10 Year Treasury Index: 15.50%
  • Citi U.S. Treasury 10 Year Index: 16.99%
  • 30-year Treasury: 35.00%
  • Barclays U.S TIPS Index: 13.56%

Note the outstanding returns for longer-term securities relative to their shorter-term counterparts. With the U.S. Federal Reserve keeping short-term rates near zero in an attempt to fuel growth,Treasury bills – which provide no chance for capital appreciation – offered little in the way of yield. However, an investor who moved out to longer-term bonds would have benefited from the price appreciation fueled by the “flight to quality” that took place in the second half of the year. The longest-term government bond – the 30-year U.S. Treasury – delivered a tremendous return of 35%, well above the 2.11% gain for the S&P 500 Index (a measure of U.S. stock price performance). Simply put, longer-term Treasuries were one of the best places an investor could have put their money in 2011.

Municipal Bonds

  • Barclays Muni Bond Index: 10.70%
  • Barclays Muni 3 Year Index: 3.46%
  • Barclays Muni 5 Year Index: 6.93%
  • Barclays Muni 7 Year Index: 10.15%
  • Barclays Muni 10 Year Index: 12.32%

The municipal bondmarket began the year in dire straits due to predictions of massive defaults in the sector during 2011. When this in fact didn’t come to fruition, munis rallied nicely and rewarded investors who looked past the headlines earlier in the year. As was the case with Treasuries, longer-term issues delivered the best performance.

Non-Government Sectors

  • Barclays Asset Backed Securities Index: 5.14%
  • Barclays GNMA Index: 7.90%
  • Credit Suisse High Yield Index: 5.47%
  • Barclays Corporate Long Investment Grade Index: 15.91%
  • Merrill Lynch U.S. Corporate Bond Master Index: 7.51%
  • JP Morgan EMI Global Diversified Index (emerging markets): 7.35%

While Treasuries garnered headlines for their outstanding performance, the higher-risk segments of the bond market also performed very well for the full year. Two factors came into play here – their income advantage and their strong performance during the first half of the year. While corporates, high yield bonds, and emerging markets debt all were hit hard during investors’ flight from higher-risk assets during the third quarter, all of these segments finished the year with solid returns.

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