Bloomberg Professional Services
This article was written by Nick Gendron, Global Head of Fixed Income Index Product Management and Scott Atha, Fixed Income Indices Product Manager at Bloomberg.
Fixed income performance highlights in 2024
- Higher yielding assets outperform once again as high yield cash bonds, leveraged loans, and hard currency EM outpace investment grade for the fourth consecutive year.
- Short duration outperforms long duration as global interest rates move higher for most major markets.
- Corporate bond excess returns in 2024 are positive with corporate spreads now at historic lows for both investment grade and high yield while yield levels sit well above historical 5-year averages.
- 25 of 27 currencies in the Bloomberg Global Aggregate Index (“Global Aggregate”) turn in positive 2024 local returns while showing mostly negative returns on a dollar unhedged basis as dollar strengthens.
- USD Core Plus outperforms Core as Bloomberg US Universal Index tops Bloomberg US Aggregate Index for 6th consecutive year.
Analysis summary
The theme of lower quality, higher yielding fixed income assets outperforming broader investment-grade assets continued in 2024 marking the fourth consecutive year of this trend as Pan Euro HY (9.14%), US High Yield (8.19%), US Leveraged Loans (8.77%) and Emerging Markets (6.58%) well outdistanced the US Aggregate (1.25%), Global Aggregate (3.49% USD hedged, -1.69% USD unhedged), and Euro-Aggregate (2.63%). To illustrate the cumulative impact over the past 4 years, US Leveraged Loans and US High Yield have returned 28.01% and 14.76% respectively while the US Aggregate and Global Aggregate (hedged) have returned -8.49% and -3.01%.
With yields in many major government markets rising in intermediate and long maturities in 2024, shorter duration bonds showed clear outperformance. This was most noteworthy in the US markets as US Corporate FRNs (6.42%), T-bills (5.29%), Treasury FRNs (5.51%) outperformed Long 10+ year Treasuries (-6.41%) and Long 10+ year Corporates (-1.95%).
US Treasury rates moved higher in intermediate and long maturities in 2024 with the 5-year up 56 basis points (bp) to 4.39%, the 10-year up 72 bp to 4.58% and 30-year up 76 bp to 4.78% while T-bills (5.28% to 4.33%) moved lower and the 2-year was unchanged at 4.25. The curve steepened between 2s / 30s moving from -23 bp inversion to a +53 bp upward slope. Rates in Europe showed a similar pattern as yields in the Euro Treasury 1-3 year maturity range dropped 40 bp to 2.23%, while 7-10 year and 10+ year rose 22 and 23 bp respectively. German yields rose an average of 9 bp (to 2.21%) while France moved higher by 34 bp to close 2024 at an average yield of 2.85%. Japanese government bond yields rose 50-60 bp across the curve to an average yield within the Japan Treasury Index of 1.09% (from 0.60%).
The yield of the Global Aggregate closed 2024 at 3.68% and is now near its closing 2022 level (3.73%) and government bond yields across many of the major currencies will now enter 2025 at their highest levels in over 10 years:
- US Treasury yields closed 2024 at 4.45%, highest year-end mark since end of 2006 at 4.79%
- JGB yields are at 1.09%, highest since end of 2007 at 1.13%
- Sterling Gilt yields are at 4.58%, highest since end of 2006 (4.68%)
- Euro Treasury now at 2.70%, lower than end of 2022 (3.16%) but otherwise is the highest since year-end 2011 (3.13%)
Among the government bond markets in the Global Aggregate Index where yields declined in 2024 were China (moved from 2.48% at close of 2023 to 1.50% at close of 2024), Canada (3.37% to 3.05%), Switzerland (0.71% to 0.28%), Thailand (2.82% to 2.36%), New Zealand (4.51% to 4.09%) and South Korea (3.21% to 2.86%).
Global Aggregate
The global investment grade bond market, as measured by the Bloomberg Global Aggregate Index, posted a 3.40% dollar hedged and a -1.69% dollar unhedged return in 2024. Among the 27 currencies represented in the index, 25 produced positive annual local returns while on a dollar unhedged basis, 20 markets were negative due to the stronger dollar. Among the larger components of the index, China led the way with a local return of 8.22%, well in front of the USD market (1.77%), Euro (2.63%), Yen (-3.07%) and Sterling (-2.46%). China yields have now dipped to 1.53% within the China Government + Policy Bank Index, a historic low since the bonds were added to the Global Aggregate in 2019.
Across the major sectors of the Global Aggregate, on a USD unhedged basis, corporates were the top performer with a return of 1.05% followed by securitized (0.53%), Government-related (-0.59%) , and Treasury (-3.66%). On a USD hedged basis, Government-related securities returned 5.41% followed by corporates (3.46%), Treasury (2.72%), and securitized (1.81%).
The Global Aggregate added $2.02 trillion of debt in 2024 and now is up to $70.7 trillion notional outstanding and $66.9 trillion market value across 30,422 securities. USD-denominated securities, the largest currency in the Global Aggregate, grew by 1.43% of the index to 46.08%. The only other currency to grow by a meaningful amount in 2024 was Chinese Yuan securities, moving from 9.07% to 9.9% of the index. In contrast, JPY-denominated securities fell by 1.45% and are now at 9.33% of the index, falling from the 3rd largest currency in the index to 4th, now behind China.
The duration of the Global Aggregate index declined 0.15 during 2024 and is now at 6.55 while the average yield of the index rose from 3.51% to 3.68%.
US Aggregate
Core USD investment grade bonds, as measured by the Bloomberg US Aggregate Index, , followed 2023’s return of 5.53% with a modest return of 1.25% in 2024 and has now posted an average annual return of -0.05% over the past 5 years. Year-to-date returns were as high as 5.25% through September 16, 2024 with Treasuries reaching an annual low yield point of 3.63% but significantly tailed off in the 4th quarter. The first half of 2024 was fairly stable with a Q1 return of -0.78% and Q2 return of 0.07%. Q3 and Q4 showed more volatility as rates rallied sharply in Q3 and sparked the US Agg to its 2nd best quarterly return (5.20%) since 1995. But rates reversed course in Q4 (return of -3.06%) and the US Aggregate Index ended the year with only a slightly positive annual return. The 2024 performance is the 8th worst annual return in the 49 years on record for the US Aggregate Index.
The ABS and CMBS sectors within the US Aggregate Index were the top performers with annual total returns of 5.02% and 4.68% respectively and were followed by Corporates (2.13%), Government-related (1.55%), MBS (1.20%) and Treasuries (0.58%). On an excess return basis, CMBS led the way with a 2024 excess return of 2.80% and was closely followed by corporates (2.46%). Asset backed also performed well relative to Treasuries (1.53%) while the MBS sector showed only modest outperformance on an excess return basis (0.37%).
In looking at the attribution of the 125 bp annual return of the US Aggregate Index, the PORT attribution model can be used to dissect the performance into curve movement, carry, and spread movement (Figure 3). At a high level, the overall curve return added 29.11 bp and the excess return explained the remaining 95.91 bp (blue box in figure 4).
Looking at this further (yellow box), the effects due to curve carry and curve change offset each other in opposite directions. The curve carry which captures the risk free portion of the time return added a total of +408.9 bp in 2024. However, with rates generally higher across the curve (especially on the longer end of the curve), the yield change component detracted from overall performance by 380 bp, resulting in a net overall positive yield curve effect of 29.11 bp for 2024.
The excess return , which explained the remaining 95.91 bp of performance, can be further decomposed (red box below) into spread return, volatility for bonds with optionality, mortgage specific return and an unexplained residual. Majority of this return is captured by spread movements. Spreads were generally tighter in 2024 and the tightening of spreads helps explain majority of the excess return (87.28 bp). The remainder of the return came from Volatility factors (5.69 bp), Residual (4.94 bp) and mortgage (1.99 bp).
During the course of 2024, the US Aggregate Index added a net 296 securities to reach a total of 13,630. The duration moved modestly lower from 6.24 to 6.08 while the yield moved 38 bp higher to 4.91%.
From a sector distribution standpoint, US Treasuries added $1.6 trillion of net issuance and grew for the fourth consecutive year from 41.6% of the US Aggregate Index at the end of 2023 to 44.3% at the close of 2024. As a result, the Government-related, Corporate and Securitized sectors dipped in percentage market value terms to 4.32%, 24.3%, and 27.1% respectively at the close of 2024 (Figure 4).
US Corporates
Following a strong 2023 (8.52% total return), US investment grade corporate bonds within the US Aggregate Index turned in a modest 2.13% total return in 2024 as tighter spreads were offset by rising US Treasury yields. Financials, due to a shorter duration profile relative to the other corporate sectors, posted a 3.91% total return and significantly outperformed utilities (1.74%) and Industrials (1.17%). Overall, the average spread (as measured by OAS) of the Bloomberg US Corporate Index declined 20 bp during 2024 and closed at 80 bp, a historical low, while yields moved 27 bp higher to close 2024 at 5.33%, well off the highs of the year of 6.43% in October but still well above the past five-year average of 3.92%.
On an excess return basis, (return in excess of duration neutral Treasuries), corporate bonds performed well posting a return of 2.46% in 2024. Utilities (340 bp) outperformed financials (288 bp), and industrials (207 bp). Excess returns were also better in the lower quality segments of the market with BAA’s (+315 bp) and single-A’s (+195 bp) outperforming AA’s (127 bp) and AAA’s (+103 bp). Spreads for BAA rated securities ended the year at 97 bp are now sub-100 for the first time since 1998.
The US Corporate Index took in $346 billion in net outstanding, $60 billion less than 2023 net additions of $408 billion and $32 billion less than 2022’s $379 billion. 21% of the net additions to the corporate index were in the utility sector helping boost the overall percentage utilities to 9.3%, up 0.58% over end of 2023. The industrials percentage in the index fell 1.0% during 2024 and is now at 57.2% while finance rose 0.45% to close 2024 at 33.4%.
US Universal
The Bloomberg US Universal Index, designed to incorporate USD-denominated investment-grade, high-yield, and EM debt and is comprised of the US Aggregate plus High Yield, 144A’s, EM, and Eurodollar, posted a total return of 2.04% in 2024, outperforming the US Aggregate Index by 0.79%, the largest margin over the US Aggregate since 2016 (1.26% of outperformance). The US Universal has now outperformed the US Aggregate in 6 consecutive years and 8 of the last 9. Contributing largely to the outperformance in 2024 was the corporate high yield sector (8.19% return), the EM high yield sector (14.80%), and the 144A sector (3.52%). From a compositional standpoint, the non-US Aggregate component of the Universal index stayed relatively stable, decreasing 0.16% during 2024 to 14.55%.
Euro Aggregate Index
The Bloomberg Euro Aggregate Index, a flagship measure of the Euro denominated investment grade market posted a total return of 2.63% in 2024, well off the pace from 2023’s return of 7.19%. This brings the average annual return of the index to 0.52% over the past 10 years. The yield of the Euro Aggregate dipped slightly from 2.87%to 2.81% during 2024.
Across the maturity spectrum, shorter maturities performed best with 1-5 year posting a 3.49% return, followed by 5-10 year (2.73%) and 10+ year (0.59%). The trend of lower quality assets outperforming was also evident within the Euro Aggregate with Baa’s (5.24%) outperforming single-A’s (3.68%), AA’s (0.64%) and AAA’s (1.68%). Among the major sectors, similar to the US Aggregate, corporates were the top performer with a 2024 return of 4.74% followed by securitized (3.36%), government-related (2.44%) and Treasury (1.88%).
Further analysis
For further detail on the 2024 performance of the markets, our Bloomberg Intelligence team has published a significant amount of detail at a sector level as well as outlooks for 2025. Bloomberg Terminal subscribers can find this research on BI <GO>. Bloomberg Terminal subscribers can also access the following monthly publications for further details:
- US Municipals – Municipal Index Monthly
- Canadian Dollar – Canadian Index Monthly
- US Leveraged Loans – Leveraged Loan Index Monthly