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.

May 14, 2024

Macro update

Last week was light in terms of economic data, but the market did react to a significant downturn in the University of Michigan’s consumer sentiment survey. It sent yields mildly lower and extended the trend that began with the potent combination of last month’s Federal Open Market Committee (FOMC) press conference and below-expectations employment data from April (Bloomberg, 5/12/2024).

Market pricing for future monetary policy changes now center on two to three rate cuts by year-end. Fed funds futures indicate the highest probabilities for the September, November and December FOMC meetings (Bloomberg, 5/12/2024).

The data calendar picks up again this week. Inflation readings are due for release which include the Producer Price Index and Consumer Price Index series on Tuesday and Wednesday, respectively. Rounding out the week will be data including retail sales, business inventories, the Philadelphia Fed’s Business Outlook and industrial production/capacity utilization for April (Bloomberg, 5/12/2024).

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Municipal bond update

Benchmark AAA muni yields again declined across the curve last week. Two-, five- and 10-year yields lowered seven, six and four basis points (bps), respectively, while 30-year yields moved 10 bps lower (Refinitiv MMD, 5/10/2024).

The Bloomberg Municipal Bond Index gained 0.47% last week, placing year-to-date (YTD) performance at -0.55%. The Bloomberg US Treasury Index increased 0.06%, slightly altering YTD performance to -2.18% (Bloomberg, 5/10/2024).

Municipal mutual funds reported $1.1 billion of inflows for the week, with ETFs bringing in $922 million and open-end funds contributing $131 million (JPMorgan, 5/8/2024).

Five-, 10- and 15-year A-rated municipal yields were 2.87%, 3.02% and 3.49%, respectively, as of the May 10 close. Related taxable-equivalent yields were 4.85%, 5.10% and 5.90%, respectively, assuming the highest rate of federal tax of 40.8% (Refinitiv MMD, Parametric, 5/10/2024).

Corporate bond update

US investment-grade (IG) corporate yields were mixed across the curve last week. Two- and five-year yields fell 17 and 13 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 36, 51 and 53 bps, respectively (Bloomberg, 5/10/2024).

The ICE BofA 1–10 Year US Corporate Index returned 0.02% for the week and 0.97% month to date. The index outperformed like-duration Treasurys on an excess-return basis by 0.01% for the week and 0.10% month to date (Bloomberg, 5/10/2024).

IG mutual funds and ETFs experienced inflows of $3.9 billion, an increase from last week’s inflows of $1.2 billion. Corporate-only funds experienced inflows of $1.9 billion following last week’s outflows of $829 million (JPMorgan, 5/10/2024).

Corporate one-to-10-year IG bond yields have risen 42 bps YTD and ended last week at 5.5%, a YTD high (Bloomberg, 5/10/2024).

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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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