(PUB) Investing 2016

21

January 2016

Morningstar FundInvestor

Bond-Market Snapshot

Treasury Yield Curve ( % )

Yield to maturity of current bills, notes, and bonds

p Current ( 12-31-15 )

p One Year Ago ( 12-31-14 )

Interest-Rate Review Following the Fed’s December interest-rate hike, the yield curve shifted upward with movement most pronounced between the one- and five-year maturities. U.S. Treasury Inflation-Protected Securities fell 0.79% for the month. For all of 2015, municipals were strong performers. The Barclays Municipal Index was up 3.3% for the year, and the long-end of the muni market as measured by the Barclays Muni 22+ Index shone even brighter with a 4.52% gain. On the other hand, emerging markets and taxable high- yield were the weakest spots in 2015. The Bank of America High Yield Master II Index lost 4.64% in 2015, and local-currency emerging-markets debt continued to take a pounding, ending the year at a 17% loss.

6.00

5.00

4.00

3.00

2.00

1.00

Maturity

1 mo 3

6

1 yr

2

3

5

7

10

20

30

Treasury and Municipal-Bond Yields

p Vanguard Interm-Term Tax-Exempt p Vanguard Interm-Term U.S. Treasury

Municipal-Bond Spread Snapshot

7.00

Unattractive 1.73

-0.04

Dec. 31, 2015

6.50

High

1.73

5.00

Low

-1.83

4.50

Average

0.09

12-31-15

3.00

Last Month (11-30-15)

-0.17

1.50

A Year Ago (12-31-14)

-0.10

0.00

Attractive -1.83

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

High-Yield and Treasury-Bond Yields

p Vanguard High-Yield Corporate p Vanguard Interm-Term U.S. Treasury

High-Yield Bond Spread Snapshot

15.00

4.68

Attractive 10.71

Dec. 31, 2015

12.00

High

10.71

9.00

Low

2.01

Average

4.00

6.00

Last Month (11-30-15)

4.28

3.00

12-31-15

A Year Ago (12-31-14)

3.52

0.00

Unattractive 2.01

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Data as of Dec. 31 , 2015 . Yield Spread: The difference between yields on differing debt instruments, calculated by deducting the yield of one instrument from another. The higher the yield spread, the greater the difference between the yields offered by each instrument. For municipal bonds, a smaller spread is attractive because munis typically pay smaller yields than Treasuries. For high-yield bonds, a wider spread is more attractive because junk bonds typically pay higher yields than Treasuries.