DEFINITION of Lehman Aggregate Bond Index
Lehman Aggregate Bond Index is an index used by bond funds 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 is to the bond market what the S&P 500 index or Dow Jones Industrial Average (DJIA) is to the equity market.
BREAKING DOWN Lehman Aggregate Bond Index
The Lehman Aggregate Bond Index was created in 1986 by Lehman Brothers to provide aggregate exposure to the U.S. bond market. The index was considered to be the best total market bond index, as it was used by more than 90% of investors in the United States. Along with the aggregate index, Lehman also had bond indices tailored to European and Asian investors. The Lehman Aggregate Bond Index comprised of securities that were of investment-grade quality or better, had at least one year to maturity, and had an outstanding par value of at least $100 million.
After Lehman Brother 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 Barclays Capital Aggregate Bond Index, which still retained the function and value of the Lehman Aggregate Bond Index. 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."
Investors looking to gain maximum exposure to the fixed income market can purchase an exchange-traded fund (ETF) that tracks the index. The largest bond ETF is the iShares Barclays Aggregate Bond ETF (ticker symbol AGG) which has net assets of over $53 billion, as of March 2018. The ETF is the most common ETF used to track the performance of investment grade bonds in the country. 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.
In 2016, after Bloomberg completed its purchase of the Barclays indices, the Barclays Capital Aggregate Bond Index was renamed Bloomberg Barclays U.S. Aggregate Bond Index. The Bloomberg Barclays U.S. Aggregate Bond Index represents most kinds of debt only if at least $300 million of the bond remains on the market. The index maintains the same quality, use, and value as the Lehman Aggregate Bond Index.