For Bond Investors, Low Expectations in a Low-Yield World<br />It all makes it less likely that core bond funds — those<br />that focus on high-quality securities — will be able to match the 3.7 percent average gain for 2017, which was 1.5 percentage points ahead of the inflation rate.<br />A 2 percent inflation rate would most likely just nudge long-term rates higher, he said, adding<br />that he expects a “slow and low trajectory” for long-term rates.<br />The 2.5 percent recent yield for the Vanguard Short-Term Corporate Bond Index fund is about<br />half a percentage point more than the yield for comparable short-term Treasuries.<br />With an expectation that long-term rates will not venture far from current levels, the Western Asset Core Plus Bond fund currently has an average duration — a measure of risk to changing interest rates —<br />that is slightly higher than the six-year norm for the benchmark Bloomberg Barclays U. S.<br />Aggregate Bond index.<br />But the aggregate index will also be very sensitive to Federal Reserve interest rate increases, as 37<br />percent of the index is invested in Treasuries and another 27 percent in government agency bonds.
