A Lackluster Year for Bond Funds

Last year was generally steady but unspectacular for open-end bond funds. While all but 98 of 4,491 bond funds tracked by TheStreet.com Ratings finished in positive territory, the average fund tallied a mediocre 4.80% total return, including dividends. (TheStreet.com Ratings treats each share class of a mutual fund as a separate fund.)

Despite an economic expansion that has been getting long in the tooth and a stubbornly inverted yield curve, which is often a harbinger of an economic downturn, funds that invest in riskier bonds outperformed.

When investors are concerned about the economic outlook, they tend to put their money in more conservative investments, pushing prices of these securities higher. At such times, people also pull money out of high-risk bonds, pushing prices down. But that didn't happen last year. ...