For decades, investors have turned to the bond markets to add stability to their portfolios and to generate steady income. But after the unprecedented volatility in 2008 and 2009, and with interest rates today near historic lows, we believe today's fixed-income opportunities require an active approach.
Today's benchmark-oriented strategies are built on low-yielding rate-sensitive securities
The Barclays U.S. Aggregate Bond Index, the bellwether proxy for the bond markets in the United States, serves as the basis for trillions of dollars worth of fixed-income assets. But after years of soaring government debts and massive expansions of government balance sheets, approximately 80% of the benchmark is now composed of government-backed securities.
Nearly 80% of the benchmark is government-backed.
Composition of the Barclays U.S. Aggregate Bond Index, 9/30/12
Sources: Barclays, Putnam Research, 9/30/12. A bond's price can fluctuate for a number of reasons. Changes in interest rates, market liquidity, default risk, and prepayment risk can all affect a bond's price. Interest rates and bond prices typically move in opposite directions. Putnam's analysis of historical data indicates that as of 9/30/12, the majority of the price changes in the securities that make up the Barclays U.S. Aggregate Bond Index were caused by interest-rate movements.