Global Aggregate: Popular bond benchmark under the spell of national debt
The Bloomberg Global Aggregate Index is valued as a reference for bond investments. However, it is dominated by government bonds from heavily indebted countries, with an increasing weight of the USA. We demonstrate that this increasingly calls into question the diversified access to risk premiums in the bond market.
Martina Zimmermann, Product Specialist for active bond solutions
Key points:
- The Global Aggregate Index is increasingly dominated by countries with high levels of government debt. Leading the way is the US, which already accounts for over 18% of the index.
- By contrast, corporate bonds account for only 18% of the index. Diversified credit risks offer an ideal complement to interest rate risks with additional return potential.
- By adding corporate bonds and credit risk premiums in lower seniority classes such as corporate hybrids, Coco bonds and secured high-yield bonds, the risk/return profile of the bond portfolio can be optimised.
Market reactions to the planned new budget law in the USA – President Donald Trump's 'Big Beautiful Bill' – make one thing clear: Bond investors are becoming increasingly concerned about the United States' rising national debt.
What's more, the sharp rise in national debt, not only in the USA but also in many other countries, is changing the face of the bond market.
This is clearly evident in the Global Aggregate Index: The most comprehensive reference index for bond investments, it includes global government bonds, quasi-government bonds, corporate bonds and securitised fixed-income bonds from issuers in industrialised and emerging countries with an 'Investment Grade' rating of at least BBB. The Bloomberg Global Aggregate Index comprises 30,593 securities from 73 countries, with a market capitalisation of over EUR 64 trillion at the end of 2024.
Composition of the Bloomberg Global Aggregate Index by rating and sectors
|
AAA |
AA |
A |
BBB |
BB |
N/A |
Total |
Treasuries |
5% |
27% |
16% |
6% |
0% |
0% |
54% |
Government related |
3% |
4% |
6% |
1% |
0% |
1% |
15% |
Securitized |
2% |
0% |
0% |
0% |
0% |
11% |
13% |
Corporates |
0% |
1% |
7% |
9% |
0% |
0% |
18% |
Total |
11% |
32% |
28% |
17% |
0% |
11% |
100% |
Source: Bloomberg as of May 2025, legal notices regarding the table below
This helps to explain why the index is so popular among investors aiming for a broadly diversified global bond portfolio. However, bond indices change continuously due to maturities and new issues. It is therefore advisable to assess development in terms of investor needs, bearing in mind the issue of national debt.
The rise in U.S. national debt shapes index development
National debt has become a key factor in index development. The outstanding volume of all US government bonds has more than doubled in the last ten years, rising from USD 17.2 trillion to USD 36.2 trillion. In the Global Aggregate Index, the share of US government bonds has increased from 14.2% at the end of 2014 to 18.7%.
Increase in US national debt leaves its mark (composition of the government bond share within the Bloomberg Global Aggregate Index, in %)
The illusion of a safe haven
This is food for thought, given that government bonds are considered a bastion of stability. They have the reputation of offering high security due to the issuers' ability to levy taxes and, if they have their own currency, print money. They are also generally liquid and are considered a safe haven in many crisis situations. The downside is low yields. Given current policies and rearmament plans, the proportion of government debt in the USA and Western European countries is likely to grow.
Moreover, government bonds carry inherent risks, especially when debt exceeds a certain level. In extreme cases, the threat of default emerges, as was seen in Greece during the debt crisis of the 2010s. Greek government bonds are also included in the Global Aggregate Index.
Currently, government bonds account for 54% of the index, while quasi-government institutions account for 15%. In addition, there are securitized bonds with a share of around 13%. Corporate bonds, on the other hand, account for only 18.3% of the index. In our opinion, this lacks a credit component. This can be clearly seen in the historical performance comparison below.
Actively adding credit risk premiums
In our opinion, the credit risk component of corporate bonds is an ideal complement to government bonds, whose return is largely defined by interest rate developments: This additional return factor can reduce the volatility of a bond portfolio thanks to its often negative correlation with interest rate risk. Furthermore, the idiosyncratic risk (the investment risk associated with the assets themselves, not the overall market) is relatively small due to the high number and diversification of corporate bond issuers, with the average S&P rating of the Bloomberg Global Aggregate Corporates Index being A-. Increasing the share of corporate bonds in the portfolio to counter the dominance of government bonds has historically paid off in our experience.
In the past, it has also been demonstrated that adding global credit risk premiums in the form of corporate hybrids, secured high yield and contingent convertibles (so-called Coco bonds) can increase returns while reducing overall risk.
Careful selection and monitoring are crucial
- Coco bonds are bank bonds that can be converted into equity or written down in times of crisis as part of a mandatory conversion process. This offers the potential for high returns.
- Secured high yield bonds, on the other hand, are high yield corporate bonds that are backed by collateral. Due to the collateral, the risk of default in the event of bankruptcy is generally reduced and the recovery rate is usually significantly higher.
- Subordinated bonds in the form of corporate hybrid bonds (excluding issuers from the financial sector) can offer investors increased return potential. This is because they can be partially counted as equity, ranking them lower in the capital structure in terms of subordination.
However, these types of bonds are mostly in the sub-investment grade area and carry higher risks. Defaults are possible. Therefore, careful selection and continuous monitoring are crucial.
Nevertheless, we believe that adding these asset categories to an investment in a Global Aggregate Portfolio can be of interest: With 50% Global Aggregate, 20% corporate bonds, and 10% each in the credit satellites corporate hybrids, coco, and secured high yield, we see opportunities for higher returns with possibly only slightly increased risk. The historical return is also significantly higher at around 1.5% per year compared to a portfolio that replicates the Global Aggregate Index 1:1 – and this with the same risk or volatility.
Historical performance of the Global Aggregate Hedged in EUR compared to a mix of corporates and other credit risk premiums (return in %)
Our Conclusion:
The Bloomberg Global Aggregate Index is the most commonly used index for foreign currency bonds. However, it is becoming increasingly weighted towards US government bonds, while corporate bonds make up a very small proportion. We therefore see a need for stronger corporate bond allocation. Adding credit risk premiums at lower seniority levels can unlock further return potential, which only slightly increases the portfolio's risk due to the diversification effect. As well as choosing the right benchmark, implementation is also crucial for investment success.
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