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 19, 2025

Macro update

Bond yields rose last week following higher-than-expected inflation data. Both headline and core Consumer Price Index (CPI) data came in well above expectations. The year-over-year rate for headline CPI ticked up one-tenth to 3%, while core drifted up by two basis points (bps), rounding up to 3.3% (Bloomberg, 2/14/2025).

Fed chair Powell testified before Congress and pointed to the CPI release as evidence that the Fed isn’t yet at its inflation target and needs to keep policy "restrictive for now." Powell went on to say, “With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance.” He also cautioned that the Fed doesn’t get "too excited" about one or two readings, whether positive or negative Given strong economic data and stubborn inflation, the Fed appears to be on pause until further notice (Bloomberg, 2/14/2025).

Key economic data releases for this week include January’s housing starts, building permits, Federal Open Markets Committee meeting minutes, existing home sales and the University of Michigan’s Consumer Sentiment Index (Bloomberg, 2/14/2025).

January 23, 2025

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

Municipal bond update

Benchmark AAA municipal yields increased meaningfully across the curve last week, with the two- and five-year yields up by eight bps each, the 10-year rising 11 bps and the 30-year increasing by eight bps. Benchmark tax-exempt yields remain materially mixed since the start of the year, with five- and 10-year yields lower by 10 and four bps, respectively, while 30-year yields are 11 bps higher (Refinitiv MMD, 2/14/2025).

The Bloomberg Municipal Bond Index now stands at 0.94% year-to-date (YTD) and lags Treasurys, which have a YTD total return of 1% (Bloomberg, 2/14/2025).

Muni relative value increased, with the 10-year benchmark muni yield at 68% of the 10-year Treasury yield, slightly above the 2024 average (Refinitiv MMD, 2/14/2025).

A-rated municipal yields range from 2.97% to 3.74%, with related taxable-equivalent yields spanning 5.02% and 6.32%, assuming a combined federal tax rate of 40.8% (Refinitiv MMD, Parametric, 2/14/2025).

Muni mutual funds experienced mild inflows of $238 million last week, with open-end funds inflows of $260 million overwhelming slight ETF outflows of $22 million (JPMorgan, 2/12/2025).

The municipal new-issue calendar this holiday-impacted week slowed to just $5.3 billion, signaling a likely temporary respite from a strong issuance trend that followed a record-setting January and a record-setting year in 2024 (Ipreo, The Bond Buyer, 2/14/2025).

Corporate bond update

US investment-grade (IG) corporate yields fell across the curve last week. Two-, five- and 10-year yields all decreased four bps each. Corporate yields are mixed across the curve YTD. Two-, five-, and 10-year yields are down three, four and seven bps, respectively (Bloomberg, 2/14/2025).

The ICE BofA 1–10 Year US Corporate Index returned 0.3% for the week and 0.4% month to date. The index underperformed like-duration Treasurys by 0.17% during the week and by 0.16% for the month (Bloomberg, 2/14/2025).

IG mutual funds and ETFs experienced inflows of $8.2 billion, an increase from the previous week’s inflows of $7.8 billion. Corporate-only funds experienced inflows of $2.7 billion, following the previous week’s inflows of $2 billion (JPMorgan, 2/14/2025).

Corporate one- to 10-year IG bond yields have fallen nine bps YTD and ended last week at 5% (Bloomberg, 2/14/2025).

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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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