Ultra-Short Bonds: Holding Their Own in a Stressful Environment
This commentary may contain assumptions that are “forward-looking statements,” which are based on certain assumptions of future events. Actual events are difficult to predict and may differ from those assumed. There can be no assurance that forward-looking statements will materialize or that actual returns or results will not be materially different from those described here.
A Note about Risk: The value of investments in fixed-income securities will change as interest rates fluctuate and in response to market movements. Generally, when interest rates rise, the prices of debt securities fall, and when interest rates fall, prices generally rise. Bonds may also be subject to other types of risk, such as call, credit, liquidity, interest-rate, and general market risks. High-yield securities, sometimes called junk bonds, carry increased risks of price volatility, illiquidity, and the possibility of default in the timely payment of interest and principal. Moreover, the specific collateral used to secure a loan may decline in value or become illiquid, which would adversely affect the loan’s value. Longer-term debt securities are usually more sensitive to interest-rate changes; the longer the maturity of a security, the greater the effect a change in interest rates is likely to have on its price. Lower-rated bonds may be subject to greater risk than higher-rated bonds. No investing strategy can overcome all market volatility or guarantee future results. Statements concerning financial market trends are based on current market conditions, which will fluctuate. An investment in a money market fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although retail money market and government money market funds seek to preserve the value of your investment at $1.00 per share, these funds cannot guarantee they will do so; it is possible to lose money by investing in a money market fund. For investors who require access to their cash in times of stress, a liquidity fee may be levied in order to pay for that liquidity (that is, investors might be required to pay a fee if they redeem shares during this time). This may be applied at the discretion of the board of directors in the best interest of shareholders of the fund. A redemption gate is a temporary measure that may be implemented by a fund’s board of directors that limits redemptions in a fund for a short period of time (up to 10 business days in a 90-day period). Its purpose is to prevent a run on a fund in times of market stress.
Treasuries are debt securities issued by the U.S. government and secured by its full faith and credit. Income from Treasury securities is exempt from state and local taxes. Although U.S. government securities are guaranteed as to payments of interest and principal, their market prices are not guaranteed and will fluctuate in response to market movements.
The Bloomberg Barclays U.S. Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The Index covers the U.S. investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. Total return comprises price appreciation/depreciation and income as a percentage of the original investment.
The Bloomberg Barclays U.S. Treasury 1-3 Year Index measures the performance of government bonds issued by the U.S. Treasury with maturities ranging between one to three years.
The Bloomberg Barclays U.S. Treasury Bill 3-6 Month Index measures the performance of government bills issued by the U.S. Treasury with maturities ranging between three and six months.
The Bloomberg Barclays U.S. Floating Rate Note (FRN) Index measures the performance of investment-grade floating-rate notes.
The Bloomberg Barclays U.S. Floating Rate Note (FRN) ‹18-Month Index measures the performance of investment-grade floating-rate notes with maturities of less than 18 months.
The Citigroup 10-Year Treasury Bond Index is a broad measure of the performance of medium-term U.S. Treasury securities.
Morningstar Category Averages: Mutual-fund research firm Morningstar classifies funds into categories according to their actual holdings rather than the objectives stated by the fund management company. Morningstar then calculates category average data for several metrics, including performance, expenses, portfolio exposures, and more.
A basis point is one one-hundredth of a percentage point.
LIBOR is an interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers' Association. The LIBOR is derived from a filtered average of the world's most creditworthy banks' interbank deposit rates for larger loans with maturities between overnight and one full year.
Mutual funds generally must calculate their net asset value (NAV) at least once every business day, typically after the major U.S. exchanges close. The NAV of a single share of a fund (or the "per share NAV") is calculated by dividing the fund’s NAV by the number of shares that are outstanding.
Standard deviation is a measure of a measure of volatility. It indicates the variability of an investment's returns.
A bond yield is the amount of return an investor will realize on a bond. Though several types of bond yields can be calculated, nominal yield is the most common. This is calculated by dividing the amount of interest paid by the face value.
A coupon rate is the yield paid by a fixed-income security; a fixed-income security’s coupon rate is simply the annual coupon payments paid by the issuer relative to the bond’s face or par value. The coupon rate is the yield the bond paid on its issue date.
The credit quality of the securities in a portfolio is assigned by a nationally recognized statistical rating organization (NRSRO) such as Standard & Poor’s, Moody’s, or Fitch, as an indication of an issuer’s creditworthiness. Ratings range from ‘AAA’ (highest) to ‘D’ (lowest). Bonds rated ‘BBB’ or above are considered investment grade. Credit ratings ‘BB’ and below are lower-rated securities. High yielding, non-investment-grade bonds involve higher risks than investment-grade bonds. Adverse conditions may affect the issuer’s ability to pay interest and principal on these securities.
The opinions in Market View are as of the date of publication, are subject to change based on subsequent developments, and may not reflect the views of the firm as a whole. The material is not intended to be relied upon as a forecast, research, or investment advice, is not a recommendation or offer to buy or sell any securities or to adopt any investment strategy, and is not intended to predict or depict the performance of any investment. Readers should not assume that investments in companies, securities, sectors, and/or markets described were or will be profitable. Investing involves risk, including possible loss of principal. This document is prepared based on the information Lord Abbett deems reliable; however, Lord Abbett does not warrant the accuracy and completeness of the information. Investors should consult with a financial advisor prior to making an investment decision.