What Is the Bloomberg Aggregate Bond Index?

What Is the Bloomberg Aggregate Bond Index?

Let me explain the Bloomberg Aggregate Bond Index directly to you—it's a broad-based fixed-income index that bond traders, mutual fund managers, and ETF managers use as a benchmark to measure their performance against the market.

I want you to understand that this index, known as the 'Agg' since August 2021, tracks investment-grade bonds like U.S. Treasurys and corporate bonds, giving you insights into the overall health of the U.S. economy. It reflects the performance of over $50 trillion in fixed-income securities, making it a vital tool for anyone involved in bonds.

Comprehensive Overview of the Bloomberg Aggregate Bond Index

In my view, the Bloomberg Aggregate Bond Index stands out as one of the best total bond market indexes available. Think of it as the bond market's equivalent to the Wilshire 5000 Total Stock Index for equities. It covers Treasury securities, corporate bonds, mortgage-backed securities (MBS), asset-backed securities, and municipal bonds, all of investment-grade quality or better.

By representing such a broad spectrum, the Agg effectively shows the overall performance of the investment-grade bond market. As an investor or fund manager, you can use it to gauge how your portfolio stacks up against this comprehensive standard.

When you follow the index, you get clear insights into interest rate movements, credit risk, and market sentiment. If the Agg is rising, it typically signals a favorable bond environment with declining interest rates; if it's declining, that suggests increasing risks or rising rates. Given its heavy weighting in U.S. Treasurys, the index directly reflects U.S. monetary policy and economic shifts.

That said, you should know the Agg excludes high-yield 'junk' bonds and some municipal securities, which limits its scope as a full market indicator. Still, it remains essential for benchmarking your fixed-income investments against the broader bond market.

Breakdown of the Bloomberg Aggregate Bond Index Components

The Agg index is built to represent the full range of investment-grade bonds traded in the U.S., with more than 10,000 issues included. U.S. Treasurys make up nearly 40% of it, while the rest covers debt from major sectors like real estate, industrial companies, financial institutions, and utilities.

As of the third quarter of 2024, the top holdings by weight include U.S. Treasurys at 43.4%, Federal National Mortgage Association (Fannie Mae) at 11.5%, Government National Mortgage Association (Ginnie Mae) at 7.1%, Federal Home Loan Corporation at 5.7%, Uniform MBS at 1.8%, and smaller portions from issuers like Bank of America Corp, JP Morgan Chase, Morgan Stanley, and Wells Fargo.

ETFs and Mutual Funds Tracking the Agg

If you're looking to get exposure to the fixed-income market, you can invest in ETFs or mutual funds that track the Agg. For instance, an ETF like the iShares Core U.S. Aggregate Bond ETF (AGG) mirrors this distribution closely, holding about 10,000 securities with net assets over $111 billion and a low expense ratio of 0.03%.

On the mutual fund side, the Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX) tracks a float-adjusted version of the index, with over $320 billion in assets and an expense ratio of 0.05%. It allocates 65.4% to U.S. government debt, 3.7% to AAA-rated debt, 3.2% to AA, 12.1% to A, and 15.5% to BBB.

Other notable Agg ETFs include SPDR Bloomberg Barclays U.S. Aggregate Bond ETF (SPAB) with $8.1 billion AUM and 0.03% expense ratio, Schwab U.S. Aggregate Bond ETF (SCHZ) with $7.9 billion and 0.03%, BNY Mellon Core Bond ETF (BKAG) with $1.8 billion and 0.01%, and JP Morgan BetaBuilders U.S. Aggregate Bond ETF (BBAG) with $1.5 billion and 0.03%. For mutual funds, consider Fidelity Total Bond Market Index Fund (FXNAX) with $56.7 billion and 0.025% expense, or Schwab U.S. Aggregate Bond Index Fund (SWAGX) with $4.9 billion and 0.04%.

History and Background

You might wonder what happened to the Barclays Aggregate Bond Index—in August 2016, Bloomberg acquired it as part of buying Barclays' index and risk analytics business, renaming it the Bloomberg Barclays US Aggregate Bond Index, and dropping the Barclays name in 2021. Before that, it was the Lehman Aggregate Bond Index until 2008, when Barclays acquired Lehman's assets after its collapse.

An aggregate index like this one includes a broad range of securities in a category, and the Bloomberg Agg fits by covering fixed-income from the U.S. government, sponsored enterprises, asset-backed securities, and corporate bonds.

The Agg index was first created in 1973 by the investment firm Kuhn, Loeb & Co. (noted as Lipson, Roundtree in some records), which developed two total-return indexes: one for U.S. government bonds and one for investment-grade corporates. These were combined in 1979, with an MBS index added in 1986. Lehman Brothers acquired this work in 1977.

The Bottom Line

To wrap this up, the Bloomberg Aggregate Bond Index, or Agg, is a critical benchmark for the U.S. investment-grade bond market, covering over $50 trillion in securities like U.S. Treasurys and high-grade corporates, though it skips high-yield and some municipal bonds.

You can track it through ETFs like iShares AGG or mutual funds like Vanguard's Total Bond Market Index Fund, which offer diversified fixed-income exposure. This index is a key tool for you to assess market health and align with economic conditions.