The fixed income market was mixed in the fourth quarter amid a general increase in interest rates. Short-term debt underperformed longer maturities as the yield curve rose over the quarter. A well-managed liftoff by the Federal Open Market Committee and general risk-off sentiment led the 10-year Treasury note to remain relatively contained through year-end. Economic data continue to disappoint and continued shaky global conditions have helped keep a lid on longer-end yields. Risk aversion is elevated, but in the absence of positive economic data, we can expect yields to stay low for the near term.
The Short-Term Bond Fund returned −0.25% in the quarter compared with −0.36% for the Barclays 1−3 Year U.S. Government/Credit Bond Index. For the 12 months ended December 31, 2015, the fund returned 0.60% versus 0.65% for the Barclays 1−3 Year U.S. Government/Credit Bond Index. The fund's average annual total returns were 0.60%, 1.16%, and 2.87% for the 1-, 5-, and 10-year periods, respectively, as of December 31, 2015. The fund's expense ratio was 0.52% as of its fiscal year ended May 31, 2015.
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Investment-grade corporate bonds generated negative total returns in the fourth quarter. The sector came under pressure by the continued decline in oil and commodities prices. Even so, the portfolio's strategic underweight to U.S. Treasuries with a corresponding overweight to investment-grade corporate bonds and out-of-benchmark allocations to mortgage-backed securities contributed to performance. Several holdings related to the energy sector underperformed amid sustained price weakness in the energy and commodity markets.
We think the Fed is going to tighten at a very gradual pace to make sure it does not derail the economic recovery. So while the fund may experience some downward price pressure, yields should pick up as we reinvest at higher rates. There is undoubtedly more risk in the market given rising concerns about liquidity. We intend to place even more emphasis on risk management to identify and mitigate unexpected events that may unfold in 2016 and beyond.