What Is the Agg?

The Agg, formally known as the Bloomberg Barclays Aggregate Bond Index, is an index used by bond traders, mutual funds, and ETFs as a benchmark to measure their relative performance.

The index includes government securities, mortgage-backed securities (MBS), asset-backed securities (ABS), and corporate securities to simulate the universe of bonds in the market. The index functions in a similar manner for the bond market to what the S&P 500 index or Dow Jones Industrial Average (DJIA) does for the equity market.

The index is broadly considered to be the best total market bond 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.

Agg Index Breakdown
courtesy Bloomberg.

Understanding the Agg

History of 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.

Key Takeaways

  • The Agg is an index that broadly tracks nearly the entire U.S. investment-grade bond market.
  • Investors looking to invest in securities that roughly mirror the Agg should look to ETFs and mutual funds that track the index, like the iShares Barclays Aggregate Bond ETF.

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."

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 (ticker symbol AGG), which has net assets of over $66 billion, as of November 2019. Investing in the ETF is the most common way investors use to track the performance of U.S. investment-grade bonds.

The Vanguard Total Bond Market Index Fund (ticker symbol VBMFX), the largest bond mutual fund in the world, also tracks the performance of the Barclays Capital Aggregate Bond Index.