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.

December 18, 2024

Macro update

Last week’s macroeconomic calendar featured Consumer Price Index (CPI) and Producer Price Index (PPI) from November. Core CPI came in at 0.3% month-over-month (MoM), as expected. Core PPI (ex-food and energy) was 0.2%, also as expected (Bloomberg, 12/16/2024).

This week’s calendar is robust, featuring a Federal Open Markets Committee (FOMC) meeting, retail sales data from November and housing data. The market is currently pricing in a 25-bps point cut from the FOMC, and retail sales data is expected to be slightly higher MoM (Bloomberg, 12/16/2024).

November 19, 2024

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

Municipal bond update

Benchmark AAA municipal yields rose materially across the curve last week, with two- and five-year maturities higher by seven and 12 basis points (bps), respectively. Further out the curve, 10- and 30-year maturities each rose by 13 bps. AAA-rated benchmark tax-exempt yields now stand between 28 and 58 bps higher than at the start of the year (Refinitiv MMD, 12/13/2024).

The Bloomberg Municipal Bond Index decreased 0.89% last week, outperforming Treasuries and leaving year-to-date (YTD) performance at 1.99%. The Bloomberg US Treasury Index lost 1.36%, cutting YTD performance to 1.18% (Bloomberg, 2/13/2024).

Muni relative value remains at fair value. The 10-year benchmark muni yield compared with the 10-year Treasury yield stands at 65%, which is three ratios higher than the YTD average (Refinitiv MMD, 12/13/2024).

Five-, 10- and 15-year A-rated municipal yields were 2.86%, 3.21% and 3.49%, respectively, as of Friday’s close. Related taxable-equivalent yields are 4.83%, 5.42% and 5.9%, respectively, assuming the highest combined federal tax rate of 40.8% (Refinitiv MMD, Parametric, 12/13/2024).

The 23-week string of muni mutual fund inflows has now been broken, with last week registering a modest outflow of $316 million. Outflows were experienced by both open-ends ($133 million) and ETFs ($183 million) (JPMorgan, 12/11/2024).

Corporate bond update

US investment-grade (IG) corporate yields rose across the curve last week. Two-, five- and 10-year yields increased 11, 17 and 23 bps, respectively. Corporate yields are mixed across the curve YTD. Two-year yields are down 34 bps, while five- and 10-year yields are up 16 bps and 22 bps, respectively (Bloomberg, 12/13/2024).

The ICE BofA 1–10 Year US Corporate Index returned -0.62% for the week and -0.24% month to date (MTD). The index outperformed like-duration Treasurys by 0.14% during the week and by 0.22% MTD (Bloomberg, 12/13/2024).

IG mutual funds and ETFs experienced inflows of $5.8 billion, an increase from the previous week’s inflows of $3.8 billion. Corporate-only funds experienced inflows of $1.8 billion, following the previous week’s inflows of $679 million (JPMorgan, 12/13/2024).

Corporate one- to 10-year IG bond yields have fallen eight bps YTD and ended last week at 5% (Bloomberg, 12/13/2024).

Investing in fixed income securities involves risk. All investments are subject to loss. Learn more.

SOLUTION

Parametric Fixed Income

Even in an uncertain rate environment, bond exposure is important. Our fixed income solutions span the maturity curve and offer the flexibility to address any investor’s needs.

Learn More >>

INSIGHT

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.

Learn More >>

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.

Learn More >>

ADVISOR TOOL

Laddered Interest Rate Scenario Tool

Capture the performance of your laddered municipal or corporate bond portfolio in changing rate environments.

TRY IT NOW >>

Get in touch

Discover how our fixed income solutions can address today’s challenges. Request a sample portfolio or transition analysis.

Request a transition analysis

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.

BLOOMBERG^® is a trademark and service mark of Bloomberg Finance LP and its affiliates (collectively “Bloomberg”). Bloomberg and Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Bloomberg does not approve or endorse this material, or guarantee the accuracy or completeness of any information herein, or make any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, shall not have any liability or responsibility for injury or damages arising in connection therewith.