The Bloomberg Global Aggregate Bond Index (Global Agg) is unmatched in its scale and diversity providing investors with an extensive range of opportunities to capture value. Its scale is vast, encompassing more than 30,000 securities from more than 3,100 issuers and with a market capitalisation of over $50 trillion1.
The index can be broken into four key components, which are outlined in Figure 1:
- Government bonds: Represent the largest component, being just above half of the index.
- Corporate bonds: These are bonds issued by corporate issuers split across the three main sectors of industrials, utilities and financials.
- Government-related bonds: Generally corporate issuers but usually with some element of government ownership or control.
- Securitised bonds: Primarily US mortgage-backed securities (MBS), but also commercial mortgage-backed securities (CMBS), asset-backed securities (ABS) and covered bonds.
Government and government-related bonds typically offer more safety through economic downturns, as well as potential for capital gains if yields fall due to a flight-to-quality. Meanwhile corporate credit may provide greater potential positive excess returns if spreads tighten, often when economic outlooks improve, and corporate sectors face more favourable prospects.
Figure 1: Bloomberg Global Aggregate Index weights1
The yield on the Bloomberg Global Aggregate Bond Index has risen significantly over recent years, presenting a more favourable outlook. Higher yields mean that investors have the potential to achieve better returns on their investments compared to the past, especially if yields decline in future and generate capital gains.
Index returns are just a starting point
The analysis from the Mercer GMDB, one of the most comprehensive database for institutional investors, shows that although equity funds generally underperform their passive counterparts, the story can be very different in fixed income. In fact, the Bloomberg Global Aggregate Index has historically generated long-term returns well below their active constituents, often even placed in the 4th quartile of the whole universe.
In Insight Investment2’s view, the ability for active managers to add value in fixed income is a function of the structural inefficiencies that can be found within fixed income indices.
Fixed income benchmarks are structurally less efficient than equity indices
Whereas markets assign the highest equity index weights to the companies with the largest market capitalisation (and generally the highest profits), fixed income benchmarks are weighted towards issuers with the most debt (or bonds) outstanding. While those issuers are not always the most leveraged, it is hardly a natural way to allocate to the most suitable investments.
For a broad index such as the Global Agg, the scale of government bond markets makes them a sizeable index component. For example, in the US, government-related debt represents just under 50% of the Bloomberg US Aggregate Index3. As this weighting is purely based on the relative size of debt in issuance it may represent an overly conservative weight for an investor with a positive growth outlook. This investor may feel that the potential allocation outlined in Figure 2 may be more suitable, and its bias towards corporate debt should result in a higher level of income.
Figure 2: Comparing the Global Aggregate Index with a potential active allocation focused on income1
Simply participating in new issues can add value
Fixed income indices undergo more frequent compositional changes than equity indices. Where equity markets saw $580bn of IPOs in 2024, credit markets saw $1.8trn of new issuance across investment grade and high yield4.
In the same way that equity IPOs tend be priced conservatively, new bond issues are usually priced at a yield premium relative to comparable debt. These issues often tighten to move in line with the broader market after the issue is complete, rewarding those investors that participate in the deal.
The rise of passive may exacerbate mispricing opportunities
As passive strategies have grown in popularity, their synchronised monthly rebalancing flows have a meaningful and predictable impact on market pricing. For example, when an issuer is downgraded from investment grade to high yield (known as a “fallen angel”), passive investment grade accounts are forced to sell the bond regardless of the outlook or price. Similarly, when new debt is issued, passive strategies can typically only purchase the deals in the secondary market at the end of the month, missing any initial gains.
These structural inefficiencies present significant opportunities for active managers to exploit.
Taking advantage of a global opportunity set
Within a universe as broad as the Global Agg, these types of inefficiencies can be global in nature. For example, many multinational corporations can issue bonds across a range of currencies to fund local operations in various regions. Investing globally, it is possible to optimise a portfolio towards the bonds of an issuer in currencies that offer the greatest value, and away from those that offer the least value. Alternatively, an investor may simply prefer the outlook in one market over another and want to bias credit holdings towards it. This can create value even while maintaining a neutral exposure to the underlying issuer and without increasing credit risk.
We illustrate this in Figure 3, which shows the spreads of US dollar, euro and sterling-denominated bonds issued by a large European energy company.
Figure 3: Spreads and maturities of senior unsecured bonds of a European energy company2
Beyond the benchmark: exploiting non-index positions
Even a universe as broad as the Global Agg doesn’t include every asset class within the spectrum of fixed income investment. Two obvious exclusions are high yield and emerging market debt. In securitised assets, it also excludes sectors such as collateralised loans and “esoteric” assets like data centre-backed deals or whole-business securitisations. Allowing skilled asset managers to access some of these asset classes might in addition offer additional alpha potential.
The value of investments can fall. Investors may not get back the amount invested.
1Source: Bloomberg Global Aggregate Index. As at July 31, 2024
2Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA), BNY Mellon Fund Management (Luxembourg) S.A. (BNY MFML) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA, BNY MFML or the BNY Mellon funds.
3Source: Global Aggregate Bond Index, Bloomberg, Data as at 30 April 2025.
4Source: Insight and Bloomberg, Data for 2024 for US markets.
2498201 Exp: 30 September 2025
