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.

August 26, 2025

Macro update

Federal Open Market Committee minutes from its last meeting released last week revealed that a majority of participants viewed upside risks to inflation as being greater than downside risks to employment, but the meeting concluded two days before the weak July payrolls report and related prior months’ downward revisions. The market-implied probability of a 25-basis point (bps) increase rose to 100% mid-week before settling back to 85% (Bloomberg, 8/22/2025).

Economic data last week showed July housing starts eclipsing expectations and building permits slightly below the consensus forecast. The leading index was in line with expectations, and the S&P US Manufacturing, Services and Composite PMI series came in consistently above expectations (Bloomberg, 8/22/2025).

This week, bond markets may react to a heavy calendar of economic data releases that includes durable goods orders; the Conference Board’s Consumer Confidence series, 2Q25 GDP; surveys from the Philadelphia, Richmond, Kansas City and Dallas Federal Reserve Banks; personal income and spending; the Personal Consumption Expenditures (PCE) and core PCE indexes and the University of Michigan’s Consumer Sentiment Index (Bloomberg, 8/22/2025).

August 6, 2025

Fixed income portfolio manager Kevin Lynyak shares his insights on the market impact of the OBBBA. Listen now:

August 1, 2025

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

Municipal bond update

Benchmark AAA municipal yields were lower to mixed last week. Two- and five-year yields were six and four bps lower, respectively, while 10- and 30-year yields dipped one bp and rose one bp, respectively (LSEG MMD, 8/22/2025).

Five- to 15-year A-rated municipal yields ranged from 2.57% to 4.32%, with related taxable-equivalent yields ranging from 4.3% to 7.3%, assuming a combined federal tax rate of 40.8% (LSEG MMD, Parametric, 8/22/2025).

Last week brought strong net inflows to muni mutual funds totaling approximately $2.3 billion, with ETFs enjoying the lion’s share of the demand, at $2.2 billion and a slight contribution of $83 million toward open-end funds (JP Morgan, 8/20/2025).

The municipal primary calendar this week slows again to $6.6 billion, following a light $8 billion last week. This two-week break in the action occurs while the second half of robust August redemption cash hits bondholder accounts, which could give the muni market a long-awaited chance for price appreciation (Ipreo, JPMorgan, 8/22/2025).

Corporate bond update

US investment-grade (IG) corporate yields fell across the curve last week. Two-, five- and 10-year yields fell five, six, and four bps, respectively. Corporate yields are lower across the curve year to date (YTD). Two-, five- and 10-year yields have fallen 52, 59 and 33 bps, respectively (Bloomberg,8/22/2025).

The ICE BofA 1–10 Year US Corporate Index returned 0.31% for the week and 1.01% month to date (MTD). The index underperformed like-duration Treasurys by -0.06% for the week but outperformed by 0.04% MTD (Bloomberg, 8/22/2025).

IG mutual funds and ETFs experienced inflows of $10.1 billion, a decrease from the previous week’s $11.6 billion. Corporate-only funds experienced inflows of $2.3 billion, following the previous week’s inflows of $5.5 billion (JPMorgan, 8/22/2025).

Corporate one- to 10-year IG bond yields have decreased 58 bps YTD and ended last week at 4.6% (Bloomberg, 8/22/2025).

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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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