Over the last 10 years, the Barclays Municipal Bond Index posted positive total returns 9 times.
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Consider that the Barclays Municipal Bond Index (the most popular industry benchmark) is comprised of predominantly longer-maturity, higher-grade debt.
For the Barclays 10-year Municipal Bond Index, the results were similar: total return for the period was 6.133%, with 1.346% coming from price and 4.795% from coupons.
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Plus, although the environment was one in which rates were declining overall, keep in mind that there were 239 weeks when rates in the Barclays Municipal Bond Index rose and prices fell (36%) versus 431 weeks where rates declined and prices rose (64%) during that period.
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During the same time frame high-yield bonds slumped 26% and bank loans fell 24%, while 5-year Treasuries gained 16%, according to our research (municipal bonds, another high-quality fixed income asset class, returned 9% over the same time span, as measured by the BarCap 5-year Municipal Bond Index).
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For example, the difference between the average yield on a triple-B-rated municipal bond in the Bank of America Merrill Lynch municipal-bond index the low end of investment grade and a triple-A-rated one has dropped to just 2.64 percentage points, the smallest since 2010.
In fact, Morningstar categorizes more than 60 municipal bond mutual funds as intermediate, of which several use one of the BarCap Municipal intermediate indices or similar index as a performance benchmark.
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In the big scheme of things, the differences in composition between total bond market index funds and the actual U.S. bond market is not large (excluding municipal bonds).
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And his ten-year-old Deutsche Municipal Bond Fund did 7.26%, versus 5.98% for the Lehman Five Year General Obligation Index, putting it in the top 4% of its class.
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