Low yields, a spotty corporate market and long-term fixed income outpacing short-term have in the facing of rising interest rates have all contributed to a difficult environment for bond fund managers.

Nonetheless, Morningstar recently rated the top 24 fixed-income mutual funds of the past year. Making the cut were PIMCO Total Return, Loomis Sayles Bond, Western Asset Core Bond, T. Rowe Price High Yield, TCW Galileo Total Return, the Metropolitan West Total Return funds and two Vanguard municipal funds, Associated Press reports.

These managers outwitted rivals by taking advantage of corporate downgrades, such as with Ford and General Motors, and investing in riskier areas, such as bank loans. But for other fixed income managers, the calls have not been so easy.

As per Mark Kiesel, senior member of PIMCO's investment strategy and portfolio management group, the fact that long bonds have not been sensitive to rising rates has created a "challenging environment for bond managers. This was totally unexpected and it has fascinated people, including us," he said. "Nobody could have predicted this. It's made for a challenging market in terms of predicting yields."

Although the Federal Reserve has been hiking up interest rates for over a year now, from 1% to 3.5% over the past 15 months, long-term funds have outdone short-term funds, which usually do not suffer from rising interest rates. In addition, the Federal Reserve is scheduled to meet tomorrow, and many predict that they will hitch up the rates even more, according The Wall Street Journal. "The Fed will not disappoint the market," said Gerald Lucas, chief marketing strategist at Bank of America Securities.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.

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