(PUB) Morningstar FundInvestor

August 2 014

Morningstar FundInvestor

21

Bond-Market Snapshot

Treasury Yield Curve ( % )

Yield to maturity of current bills, notes, and bonds

p Current ( 07-31-14 )

p One Year Ago ( 07-31-13 )

Interest-Rate Review High-yield municipal bonds performed the best in July as the Barclays High Yield Muni Index returned 0.63%. Long-term U.S. Treasuries continued their strong rally, showing the highest year-to-date returns and second-highest returns for the month. Looking at the yield curve, 30-year U.S. Treasuries had the biggest yield decline (and price increase), and the three- year portion performed the worst. High-yield corporate debt did not fare as well as high-yield munis. The Barclays US Corporate High Yield and Bank of America Merrill Lynch US High Yield Master indexes lost 1.33% and 1.32%, respectively.

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

Municipal-Bond Spread Snapshot Unattractive 1.73

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

7.00

-0.17

July 31, 2014

6.50

High

1.73

5.00

Low

-1.83

4.50

Average

0.12

07-31-14

3.00

Last Month (06-30-14)

-0.33

1.50

A Year Ago (07-31-13)

-0.96

0.00

Attractive -1.83

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

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

2.62

Attractive 10.71

July 31, 2014

12.00

High

10.71

9.00

Low

2.01

Average

4.03

6.00

Last Month (06-30-14)

2.44

3.00

A Year Ago (07-31-13)

3.84

0.00

07-31-14

Unattractive 2.01

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

Data as of July 31 , 2014 . 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.