The second quarter of 2023 was tough for bond fund investors as rising rates led to poor performance. Bond yields mostly rose, causing bond prices to fall. Funds with exposure to lower-quality bonds fared better, but gains were limited.
The largest bond index funds, such as iShares Core US Aggregate Bond ETF and Vanguard Total Bond Market Index, ended the quarter down 0.9%. Inflation-protected bond funds like iShares TIPS Bond ETF declined 1.5% due to longer duration exposure.
Vanguard Total International Bond Index showed slight gains of 0.2% for the quarter and 3.7% year-to-date. Emerging-market bonds rallied as central banks wrapped up credit tightening cycles and lower energy prices in Europe contributed to a decline in core inflation.
Among actively managed bond funds, PIMCO Income had a strong quarter with a return of 1.2%. American Funds Bond Fund of America struggled, losing 1.4% due to longer duration. Dodge & Cox Income avoided losses, while short-term bond funds made small gains, with Vanguard Short-Term Bond Index lagging.
Most of the largest bond funds have experienced negative returns over the past few years. PIMCO Income and Lord Abbett Short Duration Income are exceptions, showing positive returns since July 2020. Consider the performance of these funds over a longer timeframe.
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Note: This summary is for informational purposes only and does not constitute financial advice. Consult with fund experts for personalized investment guidance and education.
