AGG tracks the Bloomberg US Aggregate Bond Index, a widely used benchmark for the US investment-grade bond market. The portfolio holds US Treasuries, agency mortgage-backed securities and investment-grade corporate bonds, with smaller allocations to agency and other government-related debt. Average duration is around six years, which gives moderate sensitivity to interest rates. Bond funds like AGG have often risen when stocks fall in recessions, as central banks cut rates, which helps reduce portfolio volatility. In 2022 stocks and bonds fell together as rates rose quickly, which showed that this diversification is not guaranteed when inflation is high. AGG and BND hold very similar portfolios and are close substitutes.
