7 Global fixed income markets: Sowing respectively. As shown in Figure II-3a, the steep the seeds for brighter days ahead decline in U.S. bonds—along with the 12-month The pain of rising interest rates has been felt return that rolled off—reduced 10-year annualized most acutely in global fixed income markets. returns by 2 percentage points. Figure II-3b shows Both the Bloomberg U.S. Aggregate Bond Index a similar story for international bonds. However, and the Bloomberg Global Aggregate ex-USD losses there offset previous higher-than-expected Index (Hedged) have declined more than in any returns from lower relative interest rates and 12-month period in their histories, down 14.6% brought actual results more in line with our and 9.9%, for the year ended September 30, 2022, expectations from a decade ago. FIGURE II-3 Rising interest rates created near-term pain, but have raised our long-term forecast a. Fastest policy tightening in 40 years led to b. Currency hedging offset similarly large losses on unprecedented losses for U.S. bonds international bonds for U.S. investors 10-year annualized returns 10-year annualized returns % %       2.0% 1.0%               Interquartile range Actual return Median expectation Notes: Figure II-3a shows the actual 10-year annualized return of U.S. bonds compared with the VCMM forecast of 10 years earlier. Figure II-3b shows the actual 10-year annualized return of U.S. dollar-hedged international bonds compared with the VCMM forecast of 10 years earlier. For example, the 2011 data point at the beginning of each chart shows the actual return for the 10-year period 2001–2011 (solid line) compared with the 10-year return forecast made in 2001 (dotted line). After 2022, the dotted line is extended to show how our forecasts made between 2013 and 2022 (ending between 2023 and 2032) are evolving. The interquartile range represents the area between the 25th and 75th percentile of the return distribution. See the Appendix section titled “Indexes for VCMM simulations” for further details on asset classes. Source: Vanguard calculations, as of September 30, 2022. IMPORTANT: The projections and other information generated by the VCMM regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Distribution of return outcomes from VCMM are derived from 10,000 simulations for each modeled asset class. Simulations as of September 30, 2022. Results from the model may vary with each use and over time. Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index. 7 Return data begin in 1975 for the Bloomberg U.S. Aggregate Bond Index and 2000 for the Bloomberg Global Aggregate ex-USD Index Hedged. 39