March 21, 2023

Macro update

A group of large banks banded together to provide an injection of $30 billion in liquidity to First Republic Bank. The banks hope it will be enough to ease short-term liquidity pressures for First Republic (Wall Street Journal, 3/20/2023).

Central banks put together a deal for UBS to purchase Credit Suisse in a continued effort to quell investor fears and restore confidence in banks after a run on deposits last week (Wall Street Journal, 3/19/2023). 

Markets last week digested slightly higher core Consumer Price Index data and lower-than-expected Producer Price Index data. Volatility surrounding regional banks overshadowed these economic releases. 

The European Central Bank rose rates by 50 bps last week. 

The Fed is set to meet this week. At the time of this writing, the federal funds futures markets indicate a 70% chance of the Fed increasing overnight interest rates by 0.25% to a new range of 4.75 to 5.00% (Bloomberg, 3/20/2023).

Municipal bond update

Benchmark AAA yields moved lower last week. Two-, five-, 10-, and 30-year yields dropped by 30 basis points (bps), 24 bps, 13 bps, and six bps, respectively. Year-to-date (YTD) municipal yields are lower: Two-, five-, 10-, and 30-year yields are down by seven bps, 17 bps, 25 bps, and 16 bps (Thomson Reuters, 3/17/2023). 

Municipals returned a positive 0.78% last week, compared with 1.60% for the US Treasury Index. Municipals are up 2.10% YTD (Bloomberg, 3/17/2023).

Municipal mutual funds and ETFs reported about $461 million of outflows for the period ending on March 15 (Lipper, 3/15/2023). 

Five-, 10-, and 15-year A-rated municipal yields were 2.94%, 3.18%, and 3.87%, respectively, as of close on March 17. Taxable-equivalent yields are 4.97%, 5.37%, and 6.54%, respectively, assuming the highest level of federal tax at 40.80% (Refinitiv, 3/17/2023).

Corporate bond update

US investment-grade corporate yields moved lower across the curve last week. Two-, five-, and 10-year yields were 40 bps, 35 bps, and 19 bps lower, respectively. Corporate yield moves are lower across the curve YTD, with two-, five-, and 10-year yields down 15 bps, 39 bps, and 32 bps, respectively (Bloomberg, 03/17/2023).

The ICE BofA 1–10 Year US Corporate Index returned 0.49% for the week and 1.07% month to date. The index underperformed like-duration Treasuries by 1.23% on an excess-return basis for the week and underperformed by 1.61% month to date (Bloomberg, 03/17/2023).

Investment-grade mutual funds and ETFs experienced outflows of $3.8 billion, a decrease from last week’s inflow of $1.7 billion. Corporate-only funds experienced outflows of $1.6 billion following last week’s inflows of $73 million (JPMorgan, 3/17/2023).

Concern around the banking sector resulted in credit spreads widening by 34 bps last week. Despite this move, sharply lower Treasury rates offset this widening, leading to the index producing a positive 0.49% return for the week. The week ended with two-year A and BBB rated bonds yielding 4.68% and 5.19% while five-year A and BBB rated bonds yielded 4.54% and 5.12% (Bloomberg, 03/17/2023).

Investing in fixed income securities involves risk. All investments are subject to loss. Learn more.