Bloomberg Aggregate Bond Index: Definition and Who Tracks It

What Is the Bloomberg Aggregate Bond Index?

The Bloomberg Aggregate Bond Index serves as a vital benchmark for bond funds, reflecting the health of over $50 trillion in fixed-income securities. Known as the "Agg" since August 2021, it tracks investment-grade bonds, including U.S. Treasurys and corporate bonds, providing insights into the U.S. economy's broader health.

Comprehensive Overview of the Bloomberg Aggregate Bond Index

The Bloomberg Aggregate Bond Index is widely considered to be among the best total bond market indexes. In this way, the Agg is to the bond market what the Wilshire 5000 Total Stock Index is to the equity market. The Agg index includes Treasury securities, corporate bonds, mortgage-backed securities (MBS), asset-backed securities, and municipal bonds. It includes bonds that are of investment-grade quality or better.

By including a broad spectrum of effectively representing the overall performance of the investment-grade bond market. Investors and fund managers use the Agg to gauge portfolio performance against a comprehensive standard, assessing how their investments compare to the broader market.

By following the index, investors can gain insights into interest rate movements, credit risk, and overall market sentiment. A rising Agg value usually means a favorable bond environment with falling interest rates, while a declining Agg indicates rising risks or rates. featuring declining interest rates, while a declining Agg suggests increasing risk or rising rates. The Agg's composition, which includes many U.S. Treasurys, reflects U.S. monetary policy and economic changes.

However, investors should note that the Agg excludes high-yield ("junk") bonds and some municipal securities, limiting its effectiveness as a comprehensive market indicator. Despite these limits, the Agg is vital for investors to benchmark fixed-income investments and assess performance against the broader bond market.

Breakdown of the Bloomberg Aggregate Bond Index Components

The composition of the AGG index is designed to represent the full range of investment-grade bonds traded in the U.S. It's composed of more than 10,000 issues. U.S. Treasurys represent almost 40% of the index. The remaining components represent the debt of major industries, including real estate, industrial companies, financial institutions, and utilities.

The composition of the Index includes the following (all data here and below is as of the third quarter of 2024):

ETFs and Mutual Funds Tracking the Agg

Investors looking to gain maximum exposure to the fixed-income market can buy shares in an ETF or a mutual fund that tracks the index.

An ETF tied to the Agg will closely mirror this distribution. For example, the iShares AGG ETF holds about 10,000 securities. In fact, it is the largest bond ETF, with net assets of more than $111 billion, with a low expense ratio of 0.03%.

The Vanguard Total Bond Market Index Fund Admiral Shares (VBTLX), with more than $320 billion in assets under management (AUM) and an expense ratio of 0.05%, is among the largest bond mutual funds in the world, tracks the performance of the Bloomberg U.S. Aggregate Float-Adjusted Index. VBLTX has 65.4% of its funds invested in U.S. government debt, 3.7% in AAA-rated debt, 3.2% in AA debt, 12.1% in A debt, and 15.5% in BBB debt.

The Bottom Line

The Bloomberg Aggregate Bond Index, or "Agg," is a critical benchmark for the U.S. investment-grade bond market, reflecting over $50 trillion in fixed-income securities. It includes U.S. Treasurys, high-grade corporate bonds, and other investment-grade assets. While it offers a comprehensive view, it excludes high-yield and certain municipal bonds.

Investors can track the Agg through ETFs like the iShares AGG and mutual funds, such as the Vanguard Total Bond Market Index Fund, providing a diversified fixed-income portfolio. This index serves as a crucial tool for gauging market health and aligning with economic conditions.