What is the Agg or Bloomberg Barclays Aggregate Bond Index?

What Is the Agg?

The Bloomberg Barclays Aggregate Bond Index, or "Agg" (for aggregate), is a broad-based fixed-income index used by bond traders, mutual funds, and ETFs as a benchmark to measure their relative performance.

The index includes government Treasury securities, corporate bonds, mortgage-backed securities (MBS), asset-backed securities (ABS), and munis to simulate the universe of bonds in the market. The index functions in a similar manner for the bond market to what the Wilshire 5000 Total Stock Index does for the equity market.

The index is broadly considered to be the best total bond market index, as it is used by more than 90% of investors in the United States. The Agg consists of securities that are of investment-grade quality or better, have at least one year to maturity, and have an outstanding par value of at least $100 million.

Understanding the Agg

The Agg's history can be traced to earlier indices founded by the Kuhn, Loeb & Co. investment bank in 1973. Theirs were two indices: one that tracked the universe of U.S. government bonds, and one that tracked total corporate bonds.

The more modern version that came to be known first as the Lehman Aggregate Bond Index was created in 1986 by Lehman Brothers to provide aggregate exposure to the U.S. bond market.

After Lehman Brothers filed for bankruptcy in September 2008, British bank Barclays Plc bought Lehman’s North American investment banking and capital market businesses. Following this acquisition, the index was officially renamed as the Barclays Capital Aggregate Bond Index, which still retained the function and value of the Lehman Aggregate Bond Index.

In 2016, through a series of acquisitions, it became the Bloomberg Barclays Bond Index, and that co-branding between Bloomberg and Barclays was to last for its first five years.

Composition of the Agg

Also known as the “BarCap Aggregate” or “Barclays Agg,” the Barclays Capital Aggregate Bond Index comprises about $15 trillion worth of bonds and includes the entire space of domestic, investment-grade, fixed-income securities traded in the United States.

It is weighted according to market capitalization, which means the securities represented in the index are weighted according to the market size of each bond type. To be included in the index, bonds must be rated investment-grade (at least Baa3/BBB) by Moody's and S&P. Hence, the index has come to mean less "aggregate bond" and more "aggregate investment-grade bond."

courtesy Bloomberg.

As of April 2021, the Agg consisted of more than 9,500 individual securities, with 5% of all asset weight held in its top 10 holdings (mostly U.S. government and agency bonds).

Funds and ETFs That Track the Agg

Investors looking to gain maximum exposure to the fixed income market can purchase an exchange traded fund (ETF) or a mutual fund that tracks the index. The largest bond ETF is the iShares Barclays Aggregate Bond ETF (AGG), which has net assets of over $86.5 billion, as of April 2021. Investing in the ETF is the most common way investors use to track the performance of U.S. investment-grade bonds.

The $73.3 billion Vanguard Total Bond Market Index Fund (VBTLX), among the largest bond mutual funds in the world, also tracks the performance of the Barclays Capital Aggregate Bond Index.