A more inclusive U.S. aggregate bond index

A look at the Barclays U.S. Aggregate Bond Index's parent: Barclays U.S. Universal Bond Index.

Thomas Boccellari 5 May, 2015 | 5:00PM

Back when the Barclays U.S. Aggregate Bond Index (formerly the Lehman Aggregate Bond Index) launched in 1976, it was the first of its kind. It provided aggregate exposure to the U.S. bond market and gave bond managers an index by which to benchmark their performance. While it has become the most benchmarked and referenced bond index in the world, its name began to mean less "aggregate bond" and more "aggregate investment-grade bond" as time passed.

Part of that evolution stemmed from the emergence or expansion of newer opportunity sets within the fixed-income market. For example, the 1980s and 1990s witnessed the growth of the high-yield bond market. The 2000s saw innovation and growth in the asset-backed and non-agency mortgage-backed securities markets. As the fixed-income industry grew and market dynamics changed, the Barclays U.S. Aggregate Bond Index began to cover less and less of the U.S. fixed-income market, instead choosing to follow the same rules it had in place when it first launched. Today, the index excludes more than 16% of the investable, taxable, fixed-rate U.S. bond market.

But Barclays does offer a more representative market proxy in the Barclays U.S. Universal Bond Index--essentially the parent to the Barclays U.S. Aggregate Bond Index. Launched in January 1990, it targets a wider range of investable, taxable, fixed-rate U.S. bonds. In addition to including all of the constituents of the Aggregate Index, the Universal Index includes high-yield corporate bonds, as well as eurodollar, emerging-markets (U.S. dollar and U.S. listed), 144A securities, and a broader swath of commercial mortgage-backed bonds excluded from the Aggregate Index. However, like the Aggregate Index, the Universal Index excludes tax-exempt municipal bonds and inflation-protected securities; this is generally done for tax purposes.

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About Author

Thomas Boccellari

Thomas Boccellari  Thomas Boccellari is an analyst covering fixed-income strategies on Morningstar’s manager research team.