Bloomberg Barclays US Aggregate Bond Index

Overview
The Barclays Capital US Aggregate Bond Index (formerly the Lehman Aggregate Bond Index) was created in 1986, with backdated history going back to 1976. The index is a predominate index benchmark for US bond investors, and is a benchmark index for many US index funds. The Index is a composite of four major subindexes: US Government Index; US Credit Index; US Mortgage Backed Securities Index (1986); and (beginning in 1992) US Asset Backed Securities Index. The index holds investment quality bonds. The ratings are based on S&P, Moody, and Fitch bond ratings. Table 3 in the appendix provides credit quality breakdowns for the index from 2005-2009. The index does not include High Yield Bonds, Municipal Bonds, Inflation Indexed Treasury Bonds, or Foreign Currency Bonds. In 2010, the index was comprised of more than 8,200 bond issues. The time line for the addition and subtraction of asset classes, as well as changes in the minimum issue size and credit quality standards for the index are included in the time line sidebar.

The current bond asset classes comprise the index:


 * 1) Government
 * 2) Treasury bills, notes, and bonds
 * 3) Agency bonds
 * 4) Credit
 * 5) Industrial
 * 6) Finance
 * 7) Utility
 * 8) Yankee Bonds
 * 9) Mortgage Backed
 * 10) GNMA
 * 11) FNMA
 * 12) FHLMC
 * 13) Asset backed
 * 14) Credit card receivables
 * 15) Auto Loans
 * 16) Home equity loans

The relative weighting of asset classes within the index changes over time as new asset classes are added to the index, as issuance of bonds grows and ebbs, and as market security values fluctuate. The following table shows the index sector allocation over the period 1973-2009. A breakdown of mortgage backed securities (GNMA, FHLMC, FNMA) in the index from 1978-2001 is included in Table 4. of the appendix. In June 2009, as a result of the 2008 financial crisis, Barclay's announced the creation of the US Aggregate Float Adjusted Index that excludes Treasuries, agencies and MBS held in Federal Reserve accounts.

Index Returns
The following table provides return data for the index.

Index Funds
The Barclays Capital US Aggregate Bond Index was formulated as a market benchmark and contains thousands of illiquid bonds. Index fund managers therefore use sampling strategies when attempting to construct index funds tracking the index. Bond holdings range from approximately 280 to 350 bonds for Ishares and SPDR ETFs; and from approximately 530 bonds (TIAA-CREF) to 4500 bonds (Vanguard) for bond index mutual funds. The Vanguard Bond Market ETF is a share class of the Vanguard bond market index fund.

Appendix
Rules for Inclusion

Amount Outstanding/Minimum Issue Size
 * For Treasury, government-related, and corporate securities, USD250mn minimum par amount outstanding. U.S. Treasuries held in the Federal Reserve SOMA account (both purchases at issuance and net secondary market transactions) are deducted from the total amount outstanding. New issuance bought at auction by the Federal Reserve does not enter the index. Net secondary market purchases/sales are adjusted at each month-end with a one-month lag.
 * For MBS securities, pool aggregates with USD250mn minimum amount outstanding.
 * For ABS securities, USD 500mn minimum deal size and USD25mn tranche size for specific ABS issuers for which Barclays Capital can accurately price the securities. The list of index-eligible issuers is available on Barclays Capital Live.
 * For CMBS securities, USD500mn minimum original deal size, with at least USD300mn amount outstanding remaining in the deal; USD25mn minimum tranche size.

Quality
 * Rated investment-grade (Baa3/BBB-/BBB-) or higher using the middle rating of Moody’s, S&P, and Fitch after dropping the highest and lowest available ratings. When a rating from only two agencies is available, the lower (“more conservative”) is used. When a rating from only one agency is available, that is used to determine index eligibility.
 * Expected ratings at issuance may be used when there are other index-eligible bonds from the same issuer that hold the same actual rating as the expected rating.

Maturity
 * At least one year until final maturity, regardless of optionality. For securities with coupon that converts from fixed to floating rate, at least one year until the conversion date.
 * MBS must have a weighted average maturity of at least 1 year; CMBS and ABS must have a remaining average life of at least 1 year.
 * Fixed-to-floating perpetual securities are included in the index. These are included until one year before their first call date, providing they meet all other index criteria.
 * Subindices based on maturity are inclusive of lower bounds. Intermediate maturity bands include bonds with maturities of 1 to 9.9999 years. Long maturity bands include maturities 10 years and greater.

[additional rules are available on the Barclays Capital U.S. Aggregate Factsheet]