The Bloomberg Aggregate Bond Index, commonly referred to as “the Agg,” serves as a comprehensive fixed-income index used primarily by bond traders and the managers of mutual funds and exchange-traded funds (ETFs) to gauge their relative performance.
The Agg stands for the bond market what a broad stock index does for the equity market, offering a wide-ranging view of market activity and trends.
Notably, the index adopted the Bloomberg name in August 2021, switching from the legacy “Barclays Agg” name after Bloomberg purchased the Barclays fixed-income indices in 2016. For five years, these indexes were co-branded as Bloomberg Barclays indices before dropping the Barclays name entirely.
Key Takeaways
- The Bloomberg Aggregate Bond Index broadly tracks the performance of the U.S. investment-grade bond market.
- The index is composed of investment-grade government and corporate bonds.
- The iShares Core U.S. Aggregate Bond ETF (AGG) is one of the exchange-traded funds (ETFs) that track the index.
Understanding the Bloomberg Aggregate Bond Index
The Bloomberg Aggregate Bond Index is esteemed as one of the most comprehensive assessments of the total bond market.
The Agg covers a diverse range of bond types, including government Treasury securities, corporate bonds, mortgage-backed securities (MBS), asset-backed securities (ABS), and municipal bonds, all of which must be of investment-grade quality or higher to be included.
Tracing its roots to 1973, the index initially stemmed from two indices forged by Kuhn, Loeb & Co. investment bank: One that tracked U.S. government bonds and another for corporate bonds.
Composition of the Bloomberg Aggregate Bond Index
The Agg index is meticulously designed to capture the full breadth of investment-grade bonds traded within the U.S., encompassing over 10,000 distinct bond issues. Notably, nearly 40% of this index is composed of U.S. Treasury securities, with the rest representing various major industry sectors, including real estate, industrial enterprises, financial institutions, and utilities.
For instance, an ETF like the iShares AGG mirrors this distribution closely. As of early 2022, it holds about 10,000 securities with 39.17% tied to U.S. Treasuries, 10.91% to Federal National Mortgage Association, 5.65% to the Government National Mortgage Association, 5.36% to Uniform MBS, and 4.5% to Federal Home Loan Mortgage Corporation bonds. Additionally, it holds smaller percentages of securities issued by notable financial institutions like Bank of America, JPMorgan Chase, Morgan Stanley, and Goldman Sachs.
Funds and ETFs That Track the Agg
Investors aiming for broad exposure to the fixed-income market often turn to ETFs or mutual funds that follow the Agg index.
The iShares Core U.S. Aggregate Bond ETF is one such option, standing as the largest bond ETF with net assets exceeding $90 billion as of January 2022.
Similarly, the Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) is one of the world’s largest bond mutual funds, managing assets of $316.2 billion as of January 2022. This fund mirrors the performance of the Bloomberg U.S. Aggregate Float Adjusted Index.
The Vanguard Total Bond Market Index Fund distributes its assets with 65.4% invested in U.S. government debt, while the rest is allocated to various grades of debt: 3.7% in AAA-rated, 3.2% in AA, 12.1% in A, and 15.5% in BBB-rated bonds.
Related Terms: U.S. Treasuries, corporate bonds, mortgage-backed securities, asset-backed securities, investment strategies.
References
- Barrons. ‘“The Agg’ Is Getting a New Name Again. Bloomberg Has Bigger Plans for Its Index Business”.
- Bloomberg. “Bloomberg Fixed Income Indices”.
- iShares. “iShares Core U.S. Aggregate Bond ETF”.
- Vanguard. “Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX), Overview”.
- Vanguard. “Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX), Portfolio”.
