After a stellar 2020 when convertible bonds returned 46.2%1(as measured by the ICE BofA All US convertible Index – VXA0) and outperformed the S&P 500 by more than 25%, the asset class had a more modest 2021. In 2021, the VXA0 returned 6.34%, which outperformed most fixed income indices but underperformed most equity indices as shown in the PDF below:
2021 marked the beginning of what could become the worst bond bear market in 50 years. The Bloomberg Barclay’s Aggregate Bond Index, representing $26 trillion in market value, generated a loss of -1.5%. When combined with the loss of purchasing power from inflation, the results are even worse. The CPI inflation rate for 2021 was 7.0%. Combining the loss in the bond index with the loss from inflation, the purchasing power loss, or real return, from an investment in the Aggregate Index was -7.9% in 2021*.