Summary

• Despite the move lower late last week, U.S. Treasury yields are still holding well above recent lows and close to highs not seen in more than a year.
• A passive vehicle has no selection mandate, yet it persistently lands below the benchmark – dragged down by fees, transaction costs, and sampling discrepancies.
• With spreads at historically tight levels, the compensation for indiscriminate exposure is thin and the asymmetry unattractive.

Key takeaways:

• Bond benchmarks are useful but not investable: Because fixed income indices are essentially impossible to replicate in a portfolio, investors should consider more relevant comparisons to evaluate passive and active bond performance.

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