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Portfolio > Mutual Funds > Bond Funds

Bonds Weather The Storm

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Under the pressure of the Federal Reserve’s campaign to raise short-term interest rates, U.S. domestic bond funds performed admirably in 2005. The average high-quality bond fund edged up 1.3%, while the average government securities fund gained a similar 1.4%.*

Perhaps tied to this surprising performance, flows into bond funds improved this year, despite the cloudy environment. According to the Investment Company Institute, taxable bond funds received $27.0 billion in net new cash year-to-date through the end of November, versus an inflow of $1.2 billion for the year-ago period.

Going forward, much depends on where the Fed takes interest rates in 2006. The Fed Funds rate currently stands at 4.25%, after 13 consecutive increases since June 2004. Bond investors are obviously hoping that stabilizing oil prices and modest core inflation might compel the central bank to slow down or end rate hikes.

Following the latest rate increase in mid-December, the Fed seemed to imply that it may indeed be nearing an end to tightening, but maintained that “some further measured policy firming is likely to be needed.”

Standard & Poor’s Global Investment Policy Committee said it expects the funds rate to “be hiked at the next two meetings, and then to stabilize,” finishing at 4.75% by year-end 2006.

High-Quality Corporate Bond Funds

Best Performers

Year-End 2005 Returns (%)

Worst Performers

Year-End 2005 Returns (%)

Calvert Long Term Income Fund/A (CLDAX)


Potomac Evolution Managed Bond Fund/Investor (PEMVX)


Regions Morgan Keegan Select Intermediate Bond Fund/I (RIBIX)


BlackRock Intermediate Plus Bond/Serv (BPBSX)


Calvert Social Investment: Bond Portfolio/I (CBDIX)


Hallmark Inv Srs Trust Total Return Bond/R (HTRBX)


GMO Tr Short Duration Investment/III (GMSIX)


API Trust:Income/Advisor (APIUX)


Morgan Stanley Instl: Core Plus Fixed Inc/Inst (MPFIX)


Loomis Sayles Core Plus Bond/B (NERBX)


Government Bond Funds

Best Performers

Year-End 2005 Returns (%)

Worst Performers

Year-End 2005 Returns (%)

American Century Target Maturity 2025/Inv (BTTRX)


ProFunds:Rising Rates Opportunity/Svc (RRPSX)


American Century Target Maturity 2020/Inv (BTTTX)


Rydex Srs Tr:Juno Fund/C (RYJCX)


Wasatch-Hoisington:US Treasury Fund (WHOSX)


Seligman U.S. Government Securities/D (SUSDX)


ProFunds:U.S. Government Plus/Inv (GVPIX)


Flex-fund:U.S. Government Bond Fund (FLXBX)


iShares Lehman 20+Year Treasury Bond Fund (TLT)


Pacific Capital Short Intm US Government Sec/C (PSGSX)



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