What is the Barclays Capital U.S. Aggregate Bond Index?
The Barclays Capital U.S. Aggregate Bond Index is the most common index used to track the performance of investment grade bonds in the U.S.
How Does the Barclays Capital U.S. Aggregate Bond Index Work?
The Barclays Capital U.S. Aggregate Bond Index is weighted according to market capitalization, which means the securities represented in the index are weighted according to the market size of the bond category. Treasury securities, mortgage-backed securities (MBS) foreign bonds, government agency bonds and corporate bonds are some of the categories included in the index. The bonds represented are medium term with an average maturity of about 4.57 years. In all, the index represents about 8,200 fixed-income securities with a total value of approximately $15 trillion (about 43% of the total U.S. bond market).
To be included in the index, bonds must be rated investment grade (at least Baa3/BBB) by Moody's and S&P. However, almost 80% of bonds represented on the index have a AAA rating.
Why Does the Barclays Capital U.S. Aggregate Bond Index Matter?
The Barclays Capital U.S. Aggregate Bond Index is to fixed income investors what the Dow Jones Industrial Average (DJIA) or S&P 500 is for stock traders. It is the most commonly used benchmark for determining the relative performance of bond or fixed income portfolios. It is also a major indicator for the overall health of the fixed income investing market.
There are many index funds and ETFs that track the performance of the index. This provides more risk adverse investors with the opportunity to invest in funds that provide returns closely related to the overall performance of the U.S. bond market.