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.
May 5, 2025
Macro update
Last week brought economic data and corporate earnings, with tariff uncertainty still weighing on the outlook. While first-quarter earnings have been robust, guidance and analyst revisions suggest weaker earnings ahead.
First-quarter GDP came in at -0.3% and the bond market is now pricing in four quarter-point Fed rate cuts by the end of the year. Consumer confidence came in at 86.0 in April versus 93.9 prior and 88.0 expected. This is the weakest reading since the pandemic in May 2020. Excluding the pandemic lows, headline confidence is the weakest since 2014. The downside in expectations was sharp at 54.4 versus 66.9 prior. Expectations are the lowest since October 2011.
Other economic data included the Employment Cost Index for quarter one, which was 0.9% and in line with expectations and unchanged from the prior reading. Pending home sales for March were 6.1% month over month, versus 1.0% expected and 2.1% in February.
The US Payroll Situation report was released on Friday morning and was the economic highlight of the week, coming in mildly above expectations at 177,000 added jobs versus 138,000 expected. The unemployment rate was unchanged at 4.2%. The hard data doesn’t seem to be showing economic weakness, which serves to sharpen the markets’ focus on upcoming data.
With a lighter data calendar on tap, the highlight for the markets this week will be the two-day Federal Open Market Committee meeting. Street expectations are calling for no change to the overnight fed funds rate, which is currently being held in a range of between 4.25% and 4.50%. Recent rhetoric from the current administration should make Chair Jerome Powell’s press conference interesting.
April 25, 2025
Fixed income portfolio manager Kevin Lynyak shares his insights into the current bond market. Listen now:
Municipal bond update
Benchmark AAA municipal yields declined materially last week amid less volatility than prior weeks, while the muni market appears to be returning to normalcy. Two-year maturity yields decreased 11 basis points (bps), five- and 10-year yields plunged 15 bps, and 30-year yields dropped by 10 bps.
Benchmark tax-exempt yields remain higher since the start of the year, with five- and 10-year maturities up by 10 and 23 bps, respectively, while 30-year yields are higher by 46 bps. Benchmark 10-year yields remain at 3.29% (Refinitiv MMD, 5/2/2025).
The Bloomberg Municipal Bond Index gained 0.74% last week, cutting the negative year-to-date (YTD) total return to -0.88%. Treasurys had a negative week, losing 0.25% and bringing that YTD total to 2.70% (Bloomberg, 5/2/2025).
Muni relative value compared with the 10-year Treasury eased to 76% by Friday’s close but is still sharply above the two-year average of 66% (Refinitiv MMD, 5/2/2025).
Five- to 15-year A-rated municipal yields ranged from 3.17% to 4.13%, with related taxable-equivalent yields ranging from 5.35% to 6.98%, assuming a combined federal tax rate of 40.8% (Refinitiv MMD, Parametric, 5/2/2025).
Mutual funds experienced material inflows, ending a string of seven consecutive weekly net outflows. ETFs brought in a record $1.87 billion and overwhelmed mild open-end outflows of $306 million to produce a net $1.6 billion inflow for the complex. The presence of record ETF inflows just three weeks after record outflows is noteworthy and could be a harbinger of higher volatility for munis. ETF assets under management continue to grow at a healthy pace (LSEG Lipper, JPMorgan, 4/30/2025).
This week’s municipal new-issue calendar is expected to be a more manageable $8 billion, following weeks in the $12 billion range due to postponed deals re-entering the market. Seasonally heavy supply paired with seasonally light reinvestment demand has been the driving dynamic behind March and April’s muni underperformance versus the broader bond market. We expect that June, July and August will see a much stronger level of organic reinvestment in tax exempts. The open question is whether supply will abate (Ipreo, 5/2/2025).
Corporate bond update
US investment-grade (IG) corporate yields rose across the curve last week. Two-, five- and 10-year yields increased three, five and five bps, respectively. Corporate yields are lower across the curve YTD. Two-, five- and 10- year yields are down 17, 17, and five bps, respectively (Bloomberg, 5/2/2025).
The ICE BofA 1–10 Year US Corporate Index returned -0.13% for the week and 0.55% in April. The index underperformed like-duration Treasurys by -0.02% during the week and by -0.50% in May (Bloomberg, 5/2/2025).
IG mutual funds and ETFs experienced outflows of $387 million, an increase in flows from the previous week’s outflows of $4.1 billion. Corporate-only funds experienced outflows of $192 million, following the previous week’s outflows of $1.9 billion (JPMorgan, 5/2/2025).
Corporate one- to 10-year IG bond yields have decreased 14 bps YTD and ended last week at 5% (Bloomberg, 5/2/2025).
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