Three-Peat Performance for Bonds

January 2, 2003 ( - Bonds rose and stocks fell for the third year in a row, the first time that has happened since 1941.

The Lehman Brothers Aggregate Bond Index returned 10.26% in 2002, compared to a decline in the S&P 500 of 22.23%, according to Reuters.   The largest gainers in the aggregate were the Commercial Mortgage-Backed Index, up 15.32% and the Treasury index, returning 11.79%.

According to the data, the last three years have seen bonds returning approximately 10% a year, almost doubling their historical average.

Index Returns

Most high-quality bonds saw double-digit percentage gains in 2002.   Leading the charge were US Treasuries increasing almost 11.57%, with Inflation-Linked Index showing an increase of 16.97% and Asset back Index up 4.87%, according to data from Merrill Lynch & Co.

Also in the Treasury class was the only bond category to end the year in negative territory were “junk” bonds, that were hard hit by a record in corporate bankruptcies and defaults and lost 1.89%.

The yield on the benchmark 10-year Treasury, which moves in the opposite direction of the price, fell to 3.82% from 5.03%.

Additionally, most other high-quality bonds also posted low double-digit percentage gains, including tax-advantaged municipal bonds (10.73%) and government agency (10.77%).

Corporate bonds also gained 10.17%, despite the potential pitfalls investors may have experienced in companies like Worldcom or Enron.

Bond Funds

Bond mutual funds largely shared in the indexes’ gains, though unlike the indexes they carry expenses and thus might be expected to return less, fund information service Morningstar Inc said.

Leading the pack in 2002 were International Bond Funds, garnering a return of 14.14%, followed by long-term Government Funds (12.35%), Emerging Markets Bond Funds (11.13%) and Intermediate-term Government Bond Funds returning an average 9.04%, according to the Morningstar data.

The largest fund, Bill Gross’ $65.5 billion Pimco Total Return, returned 10.19%.

The other end showed only two decliners for the year:   Convertible Bond Funds and High-Yield Bond Funds, returning -8.16% and -1.93%, respectively.