Weekly Fixed Income Update

Interest rates, inflation, central bank action—all these and more can impact fixed income. Stay on top of the market with our weekly update.

July 23, 2024

Macro update

Last week the market reacted to retail sales data from June. Retail data from last month beat expectations (Bloomberg, 7/19/2024).

President Joe Biden announced over the weekend that he wouldn’t be seeking reelection. The president endorsed vice president Kamala Harris to be the Democratic nominee (Associated Press, 7/21/2024).

We expect to see existing and new home sales data, the first reading of second-quarter GDP data and June personal consumption expenditures (PCE) data, which is the Fed’s preferred inflation gauge (Bloomberg, 7/22/2024).

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Municipal bond update

Benchmark AAA muni yields declined modestly across the curve last week. Two-year municipal yields finished the week six basis points (bps) lower, five-year yields dipped by four bps and 10- and 30-year yields eased by two bps. AAA-rated benchmark tax-exempt yields now stand 24 to 50 bps higher than at the start of the year (Refinitiv MMD, 7/19/2024).

The Bloomberg Municipal Bond Index gained 0.16% last week, pushing year-to-date (YTD) performance further into positive territory at 0.34%. The Bloomberg US Treasury Index lost 0.67%, limiting the YTD performance to 0.17% (Bloomberg, 7/19/2024).

Five-, 10- and 15-year A-rated municipal yields were 2.95%, 3.12% and 3.43%, respectively, as of the July 19 close. Related taxable-equivalent yields were 4.98%, 5.27% and 5.79%, respectively, assuming the highest combined federal tax rate of 40.8% (Refinitiv MMD, Parametric, 7/19/2024).

Mutual fund flows were positive at $892 million, with ETFs bringing in $608 million and open-end funds contributing $284 million (JPMorgan, 7/17/2024).

This week’s new issue calendar remains robust for the summer season at approximately $11 billion (Ipreo, 7/19/2024).

Corporate bond update

US investment-grade (IG) corporate yields rose across the curve last week. Two-, five- and 10-year yields rose 14, 12 and eight bps, respectively. Corporate yields are higher across the curve YTD, with two-, five- and 10-year yields up 22, 38 and 32 bps, respectively (Bloomberg, 7/19/2024).

The ICE BofA 1–10 Year US Corporate Index returned -0.17% for the week and 1.10% on a month-to-date basis. The index underperformed like-duration Treasurys during the week by 0.02% and outperformed month-to-date by 0.14% (Bloomberg, 7/19/2024).

IG mutual funds and ETFs experienced inflows of $7.4 billion, an increase from last week’s inflows of $2.9 billion. Corporate-only funds experienced inflows of $3.8 billion following last week’s inflows of $1.4 billion (JPMorgan, 7/19/2024).

Corporate one-to-10-year IG bond yields have risen 11 bps YTD and ended last week at 5.2% (Bloomberg, 7/19/2024).

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INSIGHT

Corporate Bond Market Insight

Each month we recap the corporate bond market’s performance, delving into the numbers and offering forward-looking commentary. Click below for the latest edition.

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INSIGHT

Municipal Bond Market Insight

Each month we recap the muni bond market’s performance, delving into the numbers and offering forward-looking commentary. Check out the latest edition.

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The views expressed are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Parametric and its affiliates disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Parametric are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Parametric strategy. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results. All investments are subject to the risk of loss. Prospective investors should consult with a tax or legal advisor before making any investment decision. Please refer to the Disclosure page on our website for important information about investments and risks.

An imbalance in supply and demand in the municipal market may result in valuation uncertainties and greater volatility, less liquidity, widening credit spreads, and a lack of price transparency in the market. There generally is limited public information about municipal issuers. As interest rates rise, the value of certain income investments is likely to decline. Longer-term bonds typically are more sensitive to interest-rate changes than shorter-term bonds. Investments in income securities may be affected by changes in the creditworthiness of the issuer and are subject to the risk of nonpayment of principal and interest. The value of income securities also may decline because of real or perceived concerns about the issuer’s ability to make principal and interest payments.

Corporate debt securities are subject to the risk of the issuer’s inability to meet principal and interest payments on the obligation and may also be subject to price volatility due to such factors as interest rate sensitivity, market perception of the creditworthiness of the issuer, and general market liquidity. When interest rates rise, the value of corporate debt securities can be expected to decline. Debt securities with longer maturities tend to be more sensitive to interest rate movements than those with shorter maturities. Company defaults can impact the level of returns generated by corporate debt securities. An unexpected default can reduce income and the capital value of a corporate debt security. Furthermore, market expectations regarding economic conditions and the likely number of corporate defaults may impact the value of corporate debt securities.

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