'09 Fixed Income Results: 'Quite a Year,' Analysts Say

Though General U.S. Treasury Funds lost 4.77 percent for December to finish the year down 6.47 percent, notes Jeff Tjornehoj, research manager for the U.S. and Canada at Lipper, some fund groups faired much better for the full year.

Meanwhile, taxable money market funds earned 17 basis points on average for 2009, he says, though big money could have earned 32 basis points in institutional money market funds.

High current yield funds rose 2.87 percent in December and had annual returns of 46.41 percent, according to Lipper. But muni debt funds had a disappointing fourth quarter, falling 1.01 percent, still managing a gain of 15.52 percent for the full year.

Treasury funds lost ground in the fourth quarter, and general U.S. Treasury funds (-6.47 percent) produced the sole negative return for the full year in the bond funds universe. “Long-duration Treasuries were the hardest hit, with benchmarks such as the Barclays Capital U.S. 20+ Year Treasury Bond Index falling over 20 percent for 2009,” he notes.

Treasury debt was rolled into the market in unprecedented amounts in 2009, explains the Lipper analyst, yet investors had the appetite to down it all without too many complications. Near the end of the year, a few auctions started to get messy, but observers noted that valuations were pretty rich by then.

Shorter-dated Treasuries held up much better and left short U.S. Treasury funds with a skimpy — but still positive — annual return of 65 basis points. Meanwhile, TIPS Funds took advantage of the inflation fears stoked by huge issuance and finished the year up 10.75 percent, despite giving back 1.94 percent in the volatile December market.

“The nation’s corporate debt market sprang to life in 2009 after credit markets were left for dead the year before,” Tjornehoj explains. Investment-grade corporate debt bonds gained more than 21 percent for 2009, according to Bank of America data, their best performance since a 21.6 percent return in 1995.