Is investing in the Agg a bet on US Treasuries?

Over the past few years, the percentage of US Treasuries in the popular Bloomberg US Aggregate Index (the Agg) has increased considerably. As a result, investors who rely solely on an Agg-like index strategy may now be unaware of potential risks in their fixed income portfolio. This index is comprised of only half of the US fixed income universe, meaning you could be missing out on diversifying exposures in other fixed income segments.

Bloomberg US Aggregate – treasury allocation

Source: Factset, as of January 17, 2025

Investing in the Agg today is making three highly correlated bets on the US Treasury bond market, agency mortgage-backed securities, and US corporate bonds.

Moreover, the proportion of US Treasuries has steadily increased over the past several years, increasingly making the Agg a play on Treasury yields.

One solution to this concentration risk may be to construct a more robust fixed income sleeve with greater differentiation from the Agg. This could provide more opportunities for both return enhancement and risk mitigation. For example, core-plus bond strategies offer exposure to plus sectors, such as broader securitized debt categories, high yield, bank loans, and collateralized loan obligations. It can also include more defensive exposures like floating rate securities, Treasury InflationProtected Securities, and certain currencies.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Natixis Investment Managers, or any of its affiliates. The views and opinions expressed may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted, and actual results may vary.

All investing involves risk, including the risk of loss. Investment risk exists with equity, fixed income, and alternative investments. There is no assurance that any investment will meet its performance objectives or that losses will be avoided. Investors should fully understand the risks associated with any investment prior to investing.

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