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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.

February 21, 2024

Macro update

Last week, Consumer Price Index (CPI) and Producer Price Index (PPI) data dominated the economic calendar. Prices increased more than expected in January, with Core CPI coming in month over month at +0.4%. Core PPI increased by 0.6%, compared with the expected reading of 0.1% (Bloomberg, 2/20/2024). 

Expectations for future rate changes by the Federal Reserve shifted in light of recent economic data. As recently as January 31, the federal fund futures market indicated the overnight rate would finish the year at 3.86%. As of today, fed funds futures indicate a year-end overnight rate of 4.4% (Bloomberg, 2/20/2024). 

In this holiday-shortened week, economic data is lighter. The Federal Open Market Committee (FOMC) meeting minutes from January are set to be released on February 21, and later in the week, the market will digest manufacturing and home sales data (Bloomberg, 2/20/2024). 

Municipal bond update

Benchmark AAA muni yields rose across the curve last week, with the largest increase being at the five-year maturity as new-issue supply ebbed. Two-year yields increased three basis points (bps), the five-year rose five bps, and 10- and 30-year yields drifted higher by three and two bps each, respectively. Yields continue to remain higher throughout the curve year to date (YTD), with five- and 10-year yields up 18 bps each, while 30-year yields are 17 bps higher (Refinitiv MMD, 2/16/2024).

The Bloomberg Municipal Bond Index lost 10 bps last week, placing YTD performance at -0.71%. The Bloomberg US Treasury Index lost 57 bps, placing YTD performance at  2.03% (Bloomberg, 2/16/2024).

Municipal mutual funds reported weekly outflows of approximately $142 million for the week. Open-end mutual funds registered inflows of approximately $329 million but were eclipsed by muni ETF outflows of $471 million (JPMorgan, 2/14/2024).

Five-, 10- and 15-year A-rated municipal yields were 2.61%, 2.77% and 3.33%, respectively, as of the February 16 close. Related taxable-equivalent yields were 4.41%, 4.68% and 5.63%, respectively, assuming the highest rate of federal tax at 40.8% (Refinitiv MMD, Parametric, 2/16/2024).

Corporate bond update

US investment grade (IG) corporate yields rose across the curve last week. Two-, five- and 10-year yields increased by 22, 12 and 7 bps, respectively. Corporate yields are higher across the curve YTD, with two-, five- and 10-year yields up 28, 46 and 34 bps, respectively (Bloomberg, 2/16/2024).

The ICE BofA 1–10 Year US Corporate Index returned -0.23% for the week and -0.97% month to date (MTD). The index outperformed like-duration Treasurys on an excess-return basis by 0.21% for the week and 0.38% MTD (Bloomberg, 2/16/2024).

IG mutual funds and ETFs experienced inflows of $5.9 billion, a decrease from last week’s inflows of $7.5 billion. Corporate-only funds experienced inflows of $1.3 billion, following last week’s outflows of $733 million (JPMorgan, 2/16/2024).

Corporate one- to 10-year IG bond yields have risen 30 bps YTD and ended last week at 5.4% (Bloomberg, 2/16/2023).

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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.