CLIENT ACCOUNTS

Recently Viewed Accounts

You have no recently viewed accounts.

Select your location

  • Japan
  • International - other
  • Asia - other

Who are you ?

Select another location

Wer bist du ?

Wählen Sie einen anderen Ort

Qui êtes vous ?

Sélectionnez un autre emplacement

Qui êtes vous ?

Sélectionnez un autre emplacement

Who are you ?

Select another location

Qui êtes vous ?

Sélectionnez un autre emplacement

Wer bist du ?

Wählen Sie einen anderen Ort

Who are you ?

Select another location

Who are you ?

中國香港特別行政區

Who are you ?

Select another location

Wer bist du ?

Wählen Sie einen anderen Ort

Wer bist du ?

Wählen Sie einen anderen Ort

Qui êtes vous ?

Sélectionnez un autre emplacement

Who are you ?

Select another location

Wer bist du ?

Wählen Sie einen anderen Ort

Qui êtes vous ?

Sélectionnez un autre emplacement

Who are you ?

Select another location

Who are you ?

RETIREMENT PLAN INVESTOR

Use your plan ID (available on your account statement) to determine which employer-sponsored retirement plan website to use:

IF YOUR PLAN ID BEGINS WITH IRK, BRK, 754, 1 OR 2

Visit americanfunds.com/retire

IF YOUR PLAN ID BEGINS WITH 34 OR 135

Visit myretirement.americanfunds.com

Who are you ?

Select another location

Who are you ?

Select another location

Bond markets soar as the year concludes

With hikes potentially halted, bond returns deliver a boost


David Bradin
Investment director

Catherine Magyera
Investment product manager

Key takeaways for the quarter ended December 31, 2023

  • The fourth quarter, while volatile, saw relief for fixed income markets, with most sectors landing in positive territory for the period and the year. Despite initial bear steepening of the yield curve (where longer term yields rose faster than shorter term yields), Treasury yields ended the quarter lower than last quarter amidst a broader rally near year-end on a dovish tilt at the Federal Open Market Committee’s (FOMC’s) December meeting.
  • Over longer term periods, the majority of fixed income American Funds continued to deliver positive absolute returns and positive relative returns compared to their primary benchmarks.
  • We believe important portfolio roles for core fixed income funds include income, inflation protection, capital preservation and diversification from equities. Capital Group offers investments that balance these roles across fixed income mutual funds and exchange-traded funds (ETFs)*. 


The fourth quarter, while volatile, saw relief for fixed income markets. Most sectors landed in positive territory for both the period and the year. Treasury yields ended the quarter lower than the prior quarter. The yield curve generally flattened amidst a broader rally near year end on a dovish tilt at the FOMC’s December meeting and softer economic data. Credit spreads tightened considerably, especially in high yield, and longer duration bonds generally outperformed their shorter duration counterparts. Duration indicates a bond fund’s sensitivity to interest rates; generally, lower duration indicates less sensitivity. The Bloomberg U.S. Aggregate Bond Index returned 6.82% for the quarter and 5.53% for the year.

The FOMC kept the fed funds rate on hold on their path to lower inflation towards an average level of 2%. The FOMC’s December meeting turned dovish, with the “dot plot” reflecting expectations for easing more quickly than the market had anticipated.

Inflation prints (data) were mixed, but the broader disinflationary trend remained after a slightly higher-than-expected September Consumer Price Index (CPI) print. This trend may continue as lagging components, such as shelter, are reflected in the data. The U.S. Federal Reserve’s (Fed’s) December projections pointed to lower inflation forecasts for 2023 and 2024, and the committee acknowledged that inflation “has eased over the past year but remains elevated.”

Rising yields and tightening financial conditions early in the quarter paved the way for the Fed to pivot, with market yields rallying significantly in reaction to the FOMC’s December meeting. The 2-year, 5-year, 10-year and 30-year Treasury yields decreased 80 basis points (bps), 76 bps, 69 bps and 67 bps, respectively. The 10-year Treasury yield ended the quarter at 3.88% and the 2-year Treasury yield ended the quarter at 4.25%. The extent of the recent move lower in yields, as well as potential growth resiliency, impacted attractiveness of valuations in the near term. However, we believe as inflation moderates and central banks likely end rate hikes, yields are likely to decline over the next few years.

Credit spreads across high-yield and investment-grade markets rallied considerably over the quarter. Investment-grade (BBB/Baa and above) credit spreads ended the quarter at 99 bps over Treasuries, tighter by 22 bps compared to the previous quarter-end. High-yield credit spreads ended the quarter at 323 bps over Treasuries, tighter 71 bps from September. The yield to worst for the Bloomberg U.S. Corporate High Yield Index was 7.59% as of December 31, 2023. 

The bar chart title is “U.S. bond market results.” The chart displays Q4 and YTD cumulative returns. In dark blue are the returns for the Broad bond market, represented by the Bloomberg U.S. Aggregate Index. Q4 return is 6.82% and YTD return is 5.53%. In light blue are the returns for Municipals, represented by the Bloomberg Municipal Bond Index. Q4 return is 7.89% and YTD return is 6.40%. In green are the returns for High-yield corporates, represented by the Bloomberg U.S. Corporate High Yield Index. Q4 return is 7.16% and YTD return is 13.44%.

Sources: Bloomberg Index Services Ltd., RIMES. As of 12/31/23. Past results are not predictive of results in future periods.

 

The bar chart title is “Yields are maintaining strength.” The sub-title is “Major fixed income sectors, yield to worst (%).” Yield to worst is listed on the y axis, starting at 0 and ending at 10. The X axis lists dates in increments of three months, starting 12/21 and ending 12/23. A dark blue line illustrates the Bloomberg U.S. Aggregate Index, starting at 1.7% and ending at 5.1%. A light blue line illustrates the Bloomberg Municipal Bond Index, starting at 1.1% and ending at 3.8%. A green line illustrates the Bloomberg U.S. Corporate High Yield Index, starting at 4.4% and ending at 8.5%.

Sources: Bloomberg Index Services Ltd. As of 12/31/23. Past results are not predictive of results in future periods.

U.S. fixed income markets rebounded in the fourth quarter

The majority of U.S. bond market returns were positive for the quarter, in particular following a strong rally in December. In the U.S., credit (both high-yield and investment-grade) and mortgage-backed securities (MBS) were among the top performers for the quarter. Treasury Inflation-Protected Securities (TIPS) trailed nominal Treasuries as softening inflation expectations led to a drop in breakevens. (The breakeven inflation rate represents a measure of expected inflation derived from 10-Year Treasury Constant Maturity Securities and 10-Year Treasury Inflation-Indexed Constant Maturity Securities. The latest value implies what market participants expect inflation to be in the next 10 years, on average; Federal Reserve Bank of St. Louis.) Municipal bonds were positive for the quarter, led by high-yield munis.

Within this environment, our fixed income mutual funds (Class F-2 shares) and fixed-income focused ETFs had positive absolute results for the quarter*. Fourteen of our 24 fixed income mutual funds and ETFs delivered results in line (within 10 bps) or ahead of their primary benchmarks in the fourth quarter*. Strategies with less duration and less credit exposure tended to be more challenged during a period when yields rallied and credit spreads generally tightened amidst a broader market rally.

Anchoring your portfolio with disciplined fixed income funds and ETFs

Given the outlook for decelerating but historically elevated inflation and continued macroeconomic risks, a disciplined approach to overall portfolio construction remains critical. As the Fed may have signaled it is at the end of its hikes, focusing on downside protection and positioning for the potential end of the rate-hiking cycle may benefit portfolios. Broadly, fixed income may help provide income, and capital preservation, as well as diversify from equity risk and pursue inflation protection, all of which can be vital for investor portfolios as the market remains uncertain.

Funds like American Funds Strategic Bond Fund for a core plus allocation, The Bond Fund of America® and The Tax-Exempt Bond Fund of America® for a core allocation, and American Funds Multi-Sector Income Fund to seek diversified income — encompass the building blocks that can help investors seek prudent portfolio construction and pursue these investment goals.

The Bond Fund of America (ABNFX, Class F-2), our flagship core fund, takes a gradual, balanced approach to core investing. Fund managers use a disciplined, value-based approach to sector positioning, striving for strong security selection in corporate bonds, MBS and U.S. Treasury notes. The fund outpaced its benchmark, the Bloomberg U.S. Aggregate Index, over the 3-, 5- and 10-year periods (by 30 bps, 76 bps and 40 bps, respectively).

American Funds Strategic Bond Fund (ANBFX, Class F-2) uses a differentiated, disciplined approach that focuses primarily on duration, yield curve and inflation positioning, with a lesser, more opportunistic focus on credit sectors. The fund can help anchor a bond allocation, while aiming to maintain lower correlation with equities. It has delivered positive excess returns versus the benchmark, the Bloomberg U.S. Aggregate Index, over a long-term 5-year period (140 bps).

The Capital Group Core Plus Income ETF (CGCP) can anchor a portfolio while pursuing a consistent income. CGCP (market price) outpaced its primary index, the Bloomberg U.S. Aggregate Index, by 37 bps for the quarter and 166 bps for the year. The ETF leverages multiple sources of active return potential, balancing preserving capital and pursuing income while also seeking total return. It invests across a diversified set of income sectors, including investment-grade and high-yield credit, securitized credit and emerging markets debt, aiming to generate a resilient income stream.

The Tax-Exempt Bond Fund of America (TEAFX, Class F-2), our most diversified municipal bond fund, exceeded its benchmark, the Bloomberg Municipal Bond Index, over the 3-year (14 bps) and 10-year (8 bps) periods. The fund focuses on investment-grade securities, with the flexibility to own higher income securities across the rating spectrum. TEAFX takes a risk-aware approach and seeks to add value through selectivity of both credit and interest rate exposures.

The Capital Group Municipal Income ETF (CGMU) is a single-solution core municipal bond fund that is broadly diversified and incorporates high-yield municipal bonds in its pursuit of resilient income. CGMU (market price) outpaced its primary index, the 85%/15% Bloomberg 1-15 Year Blend (1-17 Year) Municipal Bond Index/Bloomberg 1-15 Year Blend (1-17 Year) High Yield Municipal Bond Index, by 2 bps for the quarter and 119 bps for the year. The ETF seeks to provide investors a tax-exempt income stream, capital preservation and total return.

American Funds Multi-Sector Income Fund (MIAYX, Class F-2) outpaced its blended benchmark over the 3-year period (95 bps), highlighting the advantage of its distinctive approach. The fund is designed to pursue opportunities diversified across multiple fixed income sectors and seeks to provide high income.

The Capital Group U.S. Multi-Sector Income ETF (CGMS) is a diversified option for investors seeking a higher income bond allocation. CGMS (market price) outpaced its primary index, the Bloomberg U.S. Aggregate Index, by 70 bps for the quarter and 596 bps for the year. The ETF leverages Capital Group’s research capabilities across diversified income sectors, both investment-grade and non-investment-grade (BB/Ba and below), while managing credit risk and volatility.

Market outlook

Looking ahead, some portfolio themes include:

  • Interest rates: Based on how several economic and rate scenarios could play out, portfolios are positioned to benefit from yield curve steepening. An inverted yield curve (where short-term interest rates are higher than long-term rates) is not a normal condition over extended periods, and given the length of the current inversion, we believe there is a greater chance of the curve dis-inverting. The potential for slowing economic growth, evidence of falling inflation, and overall uncertainty coming from ongoing geopolitical tensions, all may allow rates to move lower over the medium term. Historically, the yield curve has steepened shortly after the Fed has ended hikes.
  • MBS: Agency MBS valuations remain attractive relative to other spread sectors, supported by both positive technical and fundamental factors. Seasonal supply factors look more favorable in the winter (when supply is typically lower), and the potential for a decrease in interest rate volatility should contribute to excess returns. In addition, demand factors appear better balanced, given the attractive valuations in the sector.
  • Investment-grade corporate credit: Valuations are less compelling. Over the past several months, investment-grade credit spreads have compressed substantially and moved from modestly attractive to modestly tight. While we are less constructive on the sector broadly, we do believe there are sectoral and geographic components of the asset class where compelling opportunities exist that will be highly dependent on credit selection. While corporate credit can still fare well in a benign growth environment, credit spreads likely have limited room to tighten and there appears to be asymmetrical risk toward spread widening.


Fixed income remains a component for investors that seek balanced portfolios. As we approach the end of the potential Fed hiking cycle, there are multiple areas of opportunity. We believe fixed income can continue to serve the four roles of income, inflation protection, capital preservation and diversification from equities.

* This commentary excludes the American Funds Portfolio Series and American Funds Insurance Series fixed-income mutual funds.

Fund results and analysis

F-2

R-6

Quarterly attribution reports

Explore Quarterly Commentaries

Equities

Model portfolios

All mutual fund returns are for Class F-2 shares unless stated otherwise.

Results as of December 31, 2023. Figures shown are past results and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Investing for short periods makes losses more likely. Share prices and returns will vary, so investors may lose money. Refer to fund expense ratios and returns. View ETF expense ratios and returns.

Market price returns are determined using the official closing price of the fund's shares and do not represent the returns you would receive if you traded shares at other times.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund prospectuses and summary prospectuses, which can be obtained from a financial professional, and should be read carefully before investing.

Capital Group exchange-traded funds (ETFs) are actively managed and do not seek to replicate a specific index. ETF shares are bought and sold through an exchange at the then current market price, not net asset value (NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV when traded on an exchange. Brokerage commissions will reduce returns. There can be no guarantee that an active market for ETFs will develop or be maintained, or that the ETF's listing will continue or remain unchanged.

Investment results assume all distributions are reinvested and reflect applicable fees and expenses. Returns for one year or less are not annualized, but calculated as cumulative total returns.

When applicable, results reflect fee waivers and/or expense reimbursements, without which they would have been lower. Read details about how waivers and/or reimbursements affect the results for each fund. Refer to results and yields without fee waiver and/or expense reimbursement.

Class F-2 shares were first offered on August 1, 2008. Class F-2 share results prior to the date of first sale are hypothetical based on the results of the original share class of the fund without a sales charge, adjusted for typical estimated expenses. Results for certain funds with an inception date after August 1, 2008, also include hypothetical returns because those funds’ Class F-2 shares sold after the funds’ date of first offering. Please refer to capitalgroup.com for more information on specific expense adjustments and the actual dates of first sale.

There may have been periods when the funds have lagged the index(es). Certain market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.

The Bloomberg U.S. Corporate High Yield Index covers the universe of fixed-rate, non-investment-grade debt. The Bloomberg U.S. Aggregate Index represents the U.S. investment-grade fixed-rate bond market. The Bloomberg High Yield Municipal Bond Index is a market-value-weighted index composed of municipal bonds rated below BBB/Baa. The 85%/15% Bloomberg 1-15 Year Blend (1-17) Municipal Bond Index/Bloomberg 1-15 Year Blend (1-17) High Yield Municipal Bond Index blends the Bloomberg 1-15 Year Blend (1-17) Municipal Bond Index with the Bloomberg 1-15 Year Blend (1-17) High Yield Municipal Bond Index by weighting their cumulative total returns at 85% and 15%, respectively. The blend is rebalanced monthly. Bloomberg 1-15 Year Blend (1-17) Municipal Bond Index consists of a broad selection of investment-grade general obligation and revenue bonds of maturities ranging from one year to 17 years. Bloomberg 1-15 Year Blend (1-17) High Yield Municipal Bond Index consists of a broad selection of below-investment-grade general obligation and revenue bonds of maturities ranging from one year to 17 years. The Bloomberg Municipal Bond Index is a market-value-weighted index designed to represent the long-term investment-grade tax-exempt bond market. American Funds Multi-Sector Income Fund Custom Index comprises 45% Bloomberg U.S. High Yield Index 2% Issuer Cap, 30% Bloomberg U.S. Corporate Investment Grade Index, 15% J.P. Morgan EMBI Global Diversified Index, 8% Bloomberg CMBS ex AAA Index and 2% Bloomberg ABS ex AAA Index, and blends the respective indices by weighting their cumulative total returns according to the weights described. This assumes the blend is rebalanced monthly. Bloomberg U.S. Corporate High Yield 2% Issuer Capped Index covers the universe of fixed-rate non-investment-grade debt. The index limits the maximum exposure of any one issuer to 2%. J.P. Morgan EMBI Global Diversified Index is a uniquely weighted emerging markets debt benchmark that tracks total returns for U.S. dollar-denominated bonds issued by emerging markets sovereign and quasi-sovereign entities. Bloomberg U.S. Corporate Investment Grade Index represents the universe of investment-grade publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity and quality requirements. Bloomberg CMBS ex AAA Index represents the universe of U.S. commercial mortgage-backed securities, excluding issuers with credit ratings of AAA, the highest credit quality rating. Bloomberg ABS ex AAA Index represents the universe of U.S. asset-backed securities, excluding issuers with credit ratings of AAA, the highest credit quality rating. The indexes are unmanaged, and results include reinvested distributions but do not reflect the effect of sales charges, commissions, account fees, expenses or U.S. federal income taxes.

Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Yield to worst is the lowest yield that can be realized by either calling or putting on one of the available call/put dates, or holding a bond to maturity.

Investments in mortgage-related securities involve additional risks, such as prepayment risk, as more fully described in the prospectus.

Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility. These risks may be heightened in connection with investments in developing countries.

The use of derivatives involves a variety of risks, which may be different from, or greater than, the risks associated with investing in traditional cash securities, such as stocks and bonds.

The return of principal for bond portfolios and for portfolios with significant underlying bond holdings is not guaranteed. Investments are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. Lower rated bonds are subject to greater fluctuations in value and risk of loss of income and principal than higher rated bonds.

Bond ratings, which typically range from AAA/Aaa (highest) to D (lowest), are assigned by credit rating agencies such as Standard & Poor's, Moody's and/or Fitch, as an indication of an issuer's creditworthiness. If agency ratings differ, a security will be considered to have received the highest of those ratings, consistent with applicable investment policies. Securities in the Unrated category have not been rated by a rating agency; however, the investment adviser performs its own credit analysis and assigns comparable ratings that are used for compliance with applicable investment policies.

Income from municipal bonds may be subject to state or local income taxes. Certain other income, as well as capital gain distributions, may be taxable.

American Funds Strategic Bond Fund may engage in frequent and active trading of its portfolio securities, which may involve correspondingly greater transaction costs, adversely affecting the fund’s results.

Portfolios are managed, so holdings will change. Certain fixed income and/or cash and equivalents holdings may be held through mutual funds managed by the investment adviser or its affiliates that are not offered to the public.

BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg’s licensors approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

© 2024 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

Information has been obtained from sources believed to be reliable but J.P. Morgan does not warrant its completeness or accuracy. The Index is used with permission. The Index may not be copied, used, or distributed without J.P. Morgan's prior written approval. Copyright 2024, J.P. Morgan Chase & Co. All rights reserved.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.

All Capital Group trademarks are registered trademarks owned by The Capital Group Companies, Inc. or an affiliated company. All other company and product names mentioned are the trademarks or registered trademarks of their respective companies.

Use of this website is intended for U.S. residents only.

American Funds Distributors, Inc.