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.

March 11, 2025

Macro update

After a significant shift in sentiment, we’ve seen a rally in bonds and a correction in equities. The 10-year Treasury yield has fallen 55 basis points (bps) since mid-January, going from 4.80% to 4.25%. The S&P 500® has fallen for two weeks and has erased much of the gains since the election (Bloomberg, 3/7/25).

Tariffs on Canada, Mexico and China went into effect on March 4. The uncertainty surrounding tariff policy and supply chains continues to weigh on corporate and consumer sentiment. The net effects of tariffs are stagflationary, with bond markets having seen seven weeks of lower bond yields.

Markets received the payroll report for February on Friday. It was a solid report by most measures, with non-farm payrolls adding 151,000 jobs versus expectations of a 160,000. The unemployment rate also ticked up to 4.1% against forecasts for 4%. This data may be somewhat stale given the tariff announcements that came throughout the month of February, and the staff reductions related to the Department of Government Efficiency. This could have a marginal effect on joblessness since government hiring has accounted for approximately 25% of job growth over the last two years (Bloomberg, 3/7/25).

The market turns its attention now to this week’s Consumer Price Index and Producer Price Index reports, as well as the FOMC meeting on March 18 and 19. The Fed’s meeting will unveil a new Summary of Economic Projections, or the dot plot (Bloomberg, 3/7/25).

March 3, 2025

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

Municipal bond update

Benchmark AAA municipal yields increased moderately last week between two and 12 bps across the curve, with the short end sharply outperforming longer maturities. Benchmark tax-exempt yields are sharply mixed since the start of the year, with five- and 10-year yields lower by 16 and 10 bps, respectively, while 30-year yields are 15 bps higher (Refinitiv MMD, 3/7/25).

The Bloomberg Municipal Bond Index now stands at 0.97% year to date (YTD) and continues to lag Treasurys, which have a YTD total return of 2.11% (Bloomberg, 3/7/25).

Muni relative value remains elevated, with the 10-year benchmark muni yield at 69% of the 10-year Treasury yield, just above the three-month average of 66% (Refinitiv MMD, 3/7/25).

A-rated municipal yields range from 2.91% to 3.71%, with related taxable-equivalent yields ranging from 4.92% to 6.27%, assuming a combined federal tax rate of 40.8% (Refinitiv MMD, Parametric, 3/7/25).

Mutual funds again experienced moderate inflows, seeing $872 million for the week ending March 5, driven primarily by open-end funds at $761 and ETFs contributing $111 million (JPMorgan, 3/6/25).

The municipal new-issue calendar this week remains robust, at over $11 billion and continues at a heady pace as we begin tax-filing season (Ipreo, 3/7/25).

Corporate bond update

US investment-grade (IG) corporate yields rose across the curve last week. Two-, five- and 10-year yields increased one, seven and 12 bps, respectively. Corporate yields are lower across the curve YTD. Two-, five- and 10-year yields are down 16, 18 and 15 bps, respectively (Bloomberg, 3/7/25).

The ICE BofA 1–10 Year US Corporate Index returned -0.27% for the week and MTD. The index underperformed like-duration Treasurys by -0.01% during the week and month to date (Bloomberg, 3/7/25).

IG mutual funds and ETFs experienced inflows of $6.4 billion, an increase from the previous week’s inflows of $6 billion. Corporate-only funds experienced inflows of $971 million, following the previous week’s inflows of $1.5 million (JPMorgan, 3/7/25).

Corporate one- to 10-year IG bond yields have fallen 20 bps YTD and ended last week at 4.9% (Bloomberg, 3/7/25).

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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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