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.

April 30, 2024

Macro update

Last week’s data releases featured manufacturing, durable goods and personal consumption expenditures (PCE)—the Federal Reserve’s preferred metric on inflation. Core PCE came in at 2.7% year over year and 0.3% month over month (Bloomberg, 4/26/2024).

First-quarter GDP data was also released last week and showed that the US economy slowed to a 1.6% growth rate compared with a 2.5% expectation. Despite the slower growth, persistent inflation has likely slowed the Fed’s plan to reduce the overnight interest rate (Bloomberg, 4/26/2024).

This week we have a Federal Open Markets Committee (FOMC) meeting, where the markets expect the overnight rate to remain unchanged. The market will also digest jobs data from April and expect nonfarm payrolls to increase by 240,000 (Bloomberg, 4/26/2024).

Fixed Income Five by Kevin Lynyak

What are the fixed income five? These helpful data points shed light on what’s driving the narrative in fixed income investing and where markets might be headed.

Municipal bond update

Benchmark AAA muni yields increased mildly again last week. Two-, five- and 10-year yields were seven basis points (bps) higher, while 30-year yields rose only six bps (Refinitiv MMD, 4/26/2024).

The Bloomberg Municipal Bond Index again lost 0.29% last week, placing year-to-date (YTD) performance at -1.69%. The Bloomberg US Treasury Index lost 0.2%, taking YTD performance to -3.24% (Bloomberg, 4/26/2024).

Municipal mutual funds reported $200 million of inflows for the week. Open-end mutual fund outflows of $387 million were more than offset by ETF inflows totaling $588 million (JPMorgan, 4/26/2024).

Five-, 10- and 15-year A-rated municipal yields were 3%, 3.12% and 3.64%, respectively, as of the April 26 close. Related taxable-equivalent yields were 5.07%, 5.27% and 6.15%, respectively, assuming the highest rate of federal tax of 40.8% (Refinitiv MMD, Parametric, 4/26/2024).

Corporate bond update

US investment-grade (IG) corporate yields were mixed across the curve last week. Two- and five-year yields fell seven bps and four bps, respectively, while 10-year yields increased by three bps. Corporate yields are higher across the curve YTD, with two-, five- and 10-year yields up 41, 60 and 67 bps, respectively (Bloomberg, 4/26/2024).

The ICE BofA 1–10 Year US Corporate Index returned 0.11% for the week and -1.26% month to date (MTD). The index outperformed like-duration Treasurys on an excess-return basis by 0.19% for the week and 0.21% MTD (Bloomberg, 4/26/2024).

IG mutual funds and ETFs experienced outflows of $46 million, a decrease from last week’s inflows of $901 million. Corporate-only funds experienced outflows of $897 million following last week’s outflows of $1.6 billion (JPMorgan, 4/26/2024).

Corporate one-to-10-year IG bond yields have risen 60 bps YTD and ended last week at 5.7%, a YTD high (Bloomberg, 4/26/2024).

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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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