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 15, 2025

Macro update

Fixed income volatility continued as a response to US tariff polices. 10-year treasury yields traded below 4% as the equity market sold off on Monday, but then yields moved higher throughout the week to close above 4.5%. Only four other times in the past 30 years have we seen US bond yields spike along with a sell-off in the dollar (Bloomberg, 4/11/2025).

The presidential administration decided to institute a 90-day reprieve on “reciprocal” tariffs, but a 10% tariff rate remains with trading partners.

Economists continue to raise their targets for inflation while taking down GDP estimates. Fiscal concerns also could be pushing rates higher. The US House passed a budget that contains many of the administration’s tax cut proposals.

The Federal Reserve continues to monitor market liquidity. Fed funds rate futures are now pricing in three rate cuts for this year, with only a 30% chance of a rate cut at the upcoming Federal Open Markets Committee meeting on May 7 (Bloomberg 4/11/2025).

March 20, 2025

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

Municipal bond update

Benchmark AAA municipal yields soared last week amid historic volatility, in sympathy with Treasurys, and underperformed to close the week. Two-year maturity yields increased 69 basis points (bps), the five-year rose 74 bps, the 10-year spiked 80 bps and the 30-year added 71 bps. It’s worth noting that there were swings of between 40 and 50 bps mid-week. Given the magnitude of these yields increases, benchmark tax-exempt yields are now solidly higher since the start of the year, with five- and 10-year maturities up by 50 and 60 bps, respectively, while 30-year yields are up by an impressive 74 bps. Benchmark 10-year yields have now set a new decade high at 3.66% (Refinitiv MMD, 4/11/2025).

The Bloomberg Municipal Bond Index plummeted last week and lost 4.04%, bringing the year-to-date (YTD) total return to -2.78% YTD. Treasurys had a somewhat less jarring week and lost 2.46%, bringing that YTD total to 1.62% (Bloomberg, 4/11/2025).

Muni relative value was choppy throughout the week but ended at 83% by Friday’s close, remaining at the YTD high and its highest ratio since 2022. This percentage of the 10-year Treasury yield metric remains sharply above the two-year average of 66% (Refinitiv MMD, 4/11/2025).

Five- to 15-year A-rated municipal yields ranged from 3.57% to 4.43%, with related taxable-equivalent yields ranging from 6.03% to 7.48%, assuming a combined federal tax rate of 40.8% (Refinitiv MMD, Parametric, 4/11/2025).

Mutual funds experienced massive outflows last week. Open-end funds lost $1.9 billion, while ETFs experienced a record $1.4 billion outflow. This powerful negative combination brought the net exit for the asset class to $3.3 billion, the largest outflow since June of 2022 (LSEG Lipper, JP Morgan 4/10/2025).

Despite the outsized volatility and more than half of last week’s issuance being postponed, the municipal new-issue calendar returns with a $9 billion week scheduled to enter the market, which may grow if any postponed deals re-enter. Seasonally heavy supply has been a primary factor behind the March and April muni underperformance, which has continued (Ipreo, 4/11/2025).

Corporate bond update

US investment-grade (IG) corporate yields rose across the curve last week. Two-, five- and 10-year yields increased 35, 47 and 45 bps, respectively. Corporate yields are higher across the curve YTD. Two-, five- and 10-year yields are up six, 13 and 19 bps, respectively (Bloomberg, 4/11/2025).

The ICE BofA 1–10 Year US Corporate Index returned -1.74% for the week and -1.62% month to date (MTD). The index underperformed like-duration Treasurys by -0.15% during the week and have underperformed by -0.93% MTD (Bloomberg, 4/11/2025).

IG mutual funds and ETFs experienced outflows of $9.8 billion, a decrease in flows from the previous week’s inflows of $5 billion. Corporate-only funds experienced outflows of $4.7 billion, following the previous week’s inflows of $1.4 billion (JPMorgan, 4/11/2025).

Corporate one- to 10-year IG bond yields have increased 18 bps YTD and ended last week at 5.3% (Bloomberg, 4/11/2025).

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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.

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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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