Short-term debt posted positive absolute returns as represented by the Barclays 1-3 Year Government\Credit Index. During the first quarter, interest rates fell notably along the Treasury yield curve, with more pronounced declines in the intermediate and long portion of the curve than in shorter maturities. Risk aversion, stemming from continued concerns about slowing global economic growth, an uptick in volatility in global financial markets, and sustained lower oil prices benefited safe-haven securities. A strong reversal in risk sentiment in the second half of the quarter was supported by a bounce in commodities prices and accommodative central bank actions both domestically and abroad.
The Short-Term Bond Fund returned 0.80% in the quarter compared with 0.98% for the Barclays 1−3 Year U.S. Government/Credit Bond Index. For the 12 months ended March 31, 2016, the fund returned 0.66% versus 1.04% for the Barclays 1−3 Year U.S. Government/Credit Bond Index. The fund's average annual total returns were 0.66%, 1.24%, and 2.92% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2016. The fund's expense ratio was 0.52% as of its fiscal year ended May 31, 2015.
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The portfolio's strategic underweight to U.S. Treasuries and corresponding overweight to investment-grade corporate bonds and small allocation to high yield bonds added to results. Treasuries produced positive absolute returns but trailed the rally in riskier assets during the second half of the quarter. Investment-grade corporates were resilient throughout the quarter and produced strong returns, despite fluctuation in risk sentiment. High yield securities staged a notable rebound on the heels of stabilizing commodity prices and produced significant returns. The portfolio's overweight allocation to the intermediate portion of the curve and modest out-of-benchmark exposure to longer maturities aided returns as longer-dated instruments outperformed.
Following a surprisingly dovish March FOMC meeting, we expect the Fed to be especially reactive and gradual in removing policy accommodation in the short term given the focus on global developments. Uncertainty in the outlook for the economy and inflation is unusually elevated. We expect shorter-dated maturities to experience periods of volatility and rate pressure going forward as the Fed implements its rate normalization process, but we believe that intermediate yields will be contained by the "slow and steady" rate guidance from the Fed. Credit-sensitive sectors offer fair valuations and benefit from healthy demand, aided by demand from yield-seeking overseas investors. We are maintaining a neutral duration posture versus the benchmark and continue to focus on risk within the portfolio with a bias toward higher-quality, higher-liquidity bonds.