Bond Mutual Funds: Winners and Losers Report

(May 3rd 2012) – Bond Mutual Funds have performed well over the last 30 days. All the major categories of bond funds rose in value, with the Long Government Bonds topping the charts.

The two highest performing fund categories were Long Government Bonds and Long Term Bonds. According to Morningstar, these categories gained 4.21% and 1.56% respectively during the month.  In general, when both corporate bonds and government bond mutual funds rise in value, interest rates have gone down, which increases the value of their bond holdings.

When Government bonds lead the bond market pack, it means the market is anticipating low interest rates to continue in the near-term and gravitating towards less risky assets.  The markets were less jubilant about the economy’s growth potential in April than they were towards the beginning of the year, as economic data came in weaker than expected and Europe was back in the headlines.
To understand changes in the market, it’s useful to compare the relative performance of a few related categories:

Intermediate Term Bond Funds: Corporate vs Government

Winner: Corporate Bonds

Biggest Monthly Gainer: PIMCO Investment Grade Corp Bd Admin (PGCAX)
Intermediate Corporate Bond mutual funds outperformed Intermediate Government Bonds by 11 basis points (0.11 percent), gaining 0.95% in value during the month. An increase in corporate bond values relative to government bond values can indicate a move from safer to more risky assets OR a belief that corporate bonds have become less risky.

Government Bonds: Short vs. Intermediate vs Long Term

Winner: Long Government Bonds

Biggest Monthly Gainer: PIMCO Extended Duration Instl (PEDIX)

Overall, Government Bond mutual funds did made a huge movement, with the PIMCO Extended Duration Instl gaining 6.18% for the month. Long Government funds outperformed medium-term bonds which gained 0.84%. To put these moves in perspective, long-term bond mutual funds rose 27.95% over the last year.

 

Corporate Bonds: Investment Grade vs. Junk

Winner: Investment Grade

Biggest Gainer: Vanguard Long-Term Bond Idx Instl Pls (VBLIX)
Investment Grade Bonds with a 1.56% monthly return easily beat Junk bonds. This can occur when sentiment on the US economy is shaky or investors start looking at less risky assets to protect capital.

International Bonds: World Bonds vs Emerging Market

Winner: Tie

Biggest Gainer: Fidelity Advisor Emerging Markets Inc I (FMKIX)

Emerging Market Bonds can include countries like Brazil, India, Russia, and South Africa. World bonds generally refer to developed nations such as Germany, Japan, and The United Kingdom.

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