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.

November 19, 2024

Macro update

Last week markets reacted to Consumer Price Index (CPI) and Producer Price Index (PPI) data. Retail sales data from October was released later in the week. Core CPI month over month came in as expected at 0.3%. Core PPI data came in at 0.3%, slightly higher than the expected 0.2%. Retail Sales ex Gas and Autos came in at 0.3%, stronger than the 0.1% expected (Bloomberg, 11/15/2024).

Year-over-year core CPI now stands at 3.3%, the same level as one month prior. This year-over-year reading peaked at 6.6% in September 2022, and was 3.9% at the start of 2024 (Bloomberg, 11/15/2024).

This week we have housing data from October and economic surveys from the University of Michigan (Bloomberg, 11/18/2024).

October 10, 2024

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

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Municipal bond update

Benchmark AAA municipal yields finished last week slightly lower or unchanged across the curve, with two- and five-year maturities down four basis points (bps) each. Further out the curve, 10-year yields declined by two bps and the 30-year maturity was unchanged. AAA-rated benchmark tax-exempt yields now stand between 36 and 66 bps higher than at the start of the year (Refinitiv MMD, 11/15/2024).

The Bloomberg Municipal Bond Index increased 0.13% last week, outperforming Treasuries and bringing year-to-date (YTD) performance to 1.46%. The Bloomberg US Treasury Index lost 0.71%, cutting YTD performance to 0.66% (Bloomberg, 11/15/2024).

Relative muni value remains fair, with the 10-year benchmark muni yield comparing with the 10-year Treasury yield at 67% (Refinitiv MMD, 11/15/2024).

Five-, 10- and 15-year A-rated municipal yields were 2.82%, 3.28% and 3.57%, respectively, as of November 15. Related taxable-equivalent yields are 4.76%, 5.54% and 6.03%, respectively, assuming the highest combined federal tax rate of 40.8% (Refinitiv MMD, Parametric, 11/15/2024).

Mutual fund flows have been positive for 20 consecutive weeks, with a $305 million increase last week. This is the lightest reading since July and ETF inflows of $340 million more than offset open end outflows of $35 million. (JPMorgan, 11/13/2024).

Corporate bond update

US investment-grade (IG) corporate yields were mixed across the curve last week. Two-year yields were unchanged and five- and 10-year yields were up six and 14 bps, respectively. Corporate yields are mixed across the curve YTD. Two-year yields are down 29 bps, while five- and 10-year yields are up 24 and 29 bps, respectively (Bloomberg, 11/15/2024).

The ICE BofA 1–10 Year US Corporate Index returned -0.51% for the week and -0.18% month to date. The index underperformed like-duration Treasurys by -0.14% during the week and outperformed 0.26% month-to-date (Bloomberg, 11/15/2024).

IG mutual funds and ETFs experienced inflows of $390 million, a decrease from the previous week’s inflows of $5.76 billion (Bank of America, 11/15/2024).

Corporate one- to 10-year IG bond yields have risen one bp YTD and ended last week at 5.1% (Bloomberg, 11/15/2024).

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INSIGHT

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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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