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.

October 15, 2024

Macro update

Last week fixed income markets were focused on inflation data. Consumer Price Index (CPI) and Producer Price Index (PPI) data from September showed rising inflation. Core month-over-month CPI came in at 0.3%, compared with an expected 0.2%. Core year-over-year (YoY) CPI is now 3.3%. Core YoY PPI stands at 2.8% (Bloomberg, 10/14/2024).

The Federal Reserve Open Markets Committee (FOMC) released its September meeting minutes last week. The minutes showed healthy debate from officials on whether to cut rates by 50 or 25 basis points (bps). Ultimately only Governor Michelle Bowman voted against the half-point cut, advocating instead for a 25-bps reduction. It was the first time a governor dissented on an official vote since 2005 (Bloomberg, 10/14/2024).

This week fixed income markets were closed on Monday, October 14. The economic data calendar is lighter, and main points of interest are import and export price index data and September retail sales data (Bloomberg, 10/14/2024).

October 10, 2024

Fixed income portfolio manager Kevin Lynyak shares his insights into the current bond market. Listen now:

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Municipal bond update

Benchmark AAA municipal yields finished last week materially higher across the curve. The two- and five-year maturities rose by 11 and nine bps, respectively, while the 10- and 30-year maturities increased by 16 and 12 bps, respectively. AAA-rated benchmark tax-exempt yields now stand between 16 and 50 bps higher than at the start of the year (Refinitiv MMD, 10/11/2024).

The Bloomberg Municipal Bond Index lost 0.55% last week, roughly in line with Treasurys and leaving year-to-date (YTD) performance at 1.72%. The Bloomberg US Treasury Index lost 0.5%, reducing YTD performance to 2.18% (Bloomberg, 10/11/2024).

Despite similar performance last week, relative muni value remains slightly above fair value as a result of months of muni price increases lagging those of US Treasurys. Ten-year muni relative value compared with 10-year Treasurys now rests at 68% (Refinitiv MMD, 10/11/2024).

Five-, 10- and 15-year A-rated municipal yields were 2.62%, 3.12% and 3.43%, respectively, as of the October 9 close. Related taxable-equivalent yields are 4.43%, 5.27% and 5.79%, respectively, assuming the highest combined federal tax rate of 40.8% (Refinitiv MMD, Parametric, 10/11/2024).

Mutual fund flows have now been positive for 15 consecutive weeks, with a moderate $419 million increase last week. $604 million went into open-end funds to more than offset ETF outflows of $185 million (JPMorgan, 10/9/2024).

Corporate bond update

US investment-grade (IG) corporate yields were mixed across the curve last week. Two- year yields decreased 2bps while five- and 10-year yields increased 1 and 6 bps respectively. Corporate yields are lower across the curve YTD, with two-, five- and 10-year yields down 51, 4, and 5 bps, respectively (Bloomberg, 10/11/2024).

The ICE BofA 1–10 Year US Corporate Index returned -0.12% for the week and -0.74% month to date (MTD). The index outperformed like-duration Treasurys during the week by 0.12% and 0.39% MTD (Bloomberg, 10/11/2024).

IG mutual funds and ETFs experienced inflows of $5.7 billion, a decrease from the previous week’s inflows of $7 billion. Corporate-only funds experienced inflows of $307 million, following the previous week’s inflows of $86 million (JPMorgan, 10/11/2024).

Corporate one- to 10-year IG bond yields have fallen 32 bps YTD and ended last week at 4.8% (Bloomberg, 10/11/2024).

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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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