Lehman Aggregate Bond Index
The Bloomberg Aggregate Bond Index or "the Agg" is a broad-based fixed-income index used by bond traders and the managers of mutual funds and exchange-traded funds (ETFs) as a benchmark to measure their relative performance.The Agg is to the bond market what the Wilshire 5000 Total Stock Index is to the equity market.The index has been known as the Bloomberg Agg only since August 2021. It was for many years the Barclays Agg. Bloomberg purchased Barclays fixed-income indexes in 2016 and, for the following five years, labeled them as Bloomberg Barclays indices. All now carry only the Bloomberg name.
Definition: The Lehman Aggregate Bond Index is a widely used benchmark in the bond market, designed to measure the overall performance of the U.S. investment-grade bond market. It includes various segments such as government bonds, corporate bonds, mortgage-backed securities (MBS), and asset-backed securities (ABS).
Origin: The Lehman Aggregate Bond Index was first created by Lehman Brothers in 1973 to provide a comprehensive bond market benchmark. After Lehman Brothers' bankruptcy in 2008, Barclays acquired its fixed income index business and renamed it the Barclays Aggregate Bond Index. In 2016, Bloomberg acquired Barclays' fixed income index business and rebranded it as the Bloomberg Aggregate Bond Index in 2021.
Categories and Characteristics: The Lehman Aggregate Bond Index is mainly divided into the following categories:
- Government Bonds: Includes U.S. Treasury and government agency bonds, characterized by high safety and low yield.
- Corporate Bonds: Includes bonds issued by investment-grade companies, offering higher yields but also higher risks.
- Mortgage-Backed Securities (MBS): Composed of residential mortgages, with yields and risks between government and corporate bonds.
- Asset-Backed Securities (ABS): Backed by various assets such as auto loans and credit card debt, with diverse risks and yields.
Specific Cases:
- Case 1: A mutual fund manager uses the Lehman Aggregate Bond Index as a benchmark to evaluate the fund's performance. By comparing the fund's yield with the index yield, the manager can determine the effectiveness of the investment strategy.
- Case 2: An ETF manager chooses to track the Lehman Aggregate Bond Index to provide investors with a diversified bond portfolio. By purchasing the ETF, investors can indirectly invest in the entire bond market.
Common Questions:
- Question 1: Why is the Lehman Aggregate Bond Index important to investors?
Answer: The index provides a comprehensive market benchmark, helping investors evaluate their portfolio performance and manage risks. - Question 2: How does the Lehman Aggregate Bond Index differ from other bond indices?
Answer: The Lehman Aggregate Bond Index covers a broader bond market, including government bonds, corporate bonds, MBS, and ABS, whereas other indices may focus on a specific type of bond.
