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.

March 18, 2025

Macro update

Trade tensions, economic data and policy uncertainty spurred significant volatility in last week’s markets. Temporary tariff exemptions for autos provided brief relief, but overall trade doubt weighed heavily on investor sentiment.

Major equity indexes had their worst week since September 2024. The Nasdaq entered correction territory, down more than 10% from its recent peak. Credit spreads widened modestly (Bloomberg, 3/17/25).

The consumer price index (CPI) came in softer than expected, with the headline and core CPI rising month over month by 0.22% and 0.23%, respectively. A dampened services component, weakness in owners' equivalent rent and softer airfares were what largely drove the downward surprise (Bloomberg, 3/17/25).

The primary focus for the markets this week will likely be on the Federal Open Market Committee (FOMC) meeting. A new Summary of Economic Projections, also known as the dot plot, is scheduled for release at the conclusion of the two-day assembly. No rate change is expected. (Bloomberg, 3/17/25).

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 spiked last week between six and 16 basis points (bps) across the curve, with the long end sharply underperforming shorter maturities. Benchmark tax-exempt yields are materially mixed since the start of the year, with five-year yields lower by seven bps, 10-year yields higher by six bps and 30-year yields higher by 30 bps (Refinitiv MMD, 3/14/25).

The Bloomberg Municipal Bond Index now stands at 0.07% year to date (YTD) and continues to lag Treasurys, which have a YTD total return of 2.18% (Bloomberg, 3/14/25).

Muni relative value has reached its highest since November of 2023, with the 10-year benchmark muni yield at 72% of the 10-year Treasury yield, well-above the three-month average of 66% (Refinitiv MMD, 3/14/25).

A-rated municipal yields range from 3% to 3.89%, with related taxable-equivalent yields ranging from 5.07% to 6.57%, assuming a combined federal tax rate of 40.8% (Refinitiv MMD, Parametric, 3/14/25).

Mutual funds experienced modest outflows. ETFs losing $294 million and open-end funds detracting $79 million primarily drove a $373 million exit for the week ending on March 12 (JPMorgan, 3/13/25).

The municipal new-issue calendar this week remains robust, at more than $10 billion. It’s impressive given the presence of the FOMC meeting, which usually drives a lull in issuance. The heady pace continues and, as we saw last week, it’s weighing on municipal bond pricing (Ipreo, 3/14/25).

Corporate bond update

US investment-grade (IG) corporate yields rose across the curve last week. Two-, five- and 10-year yields increased six, seven and five bps, respectively. Corporate yields are lower across the curve YTD. Two-, five- and 10-year yields are down 10, 11 and 10 bps, respectively (Bloomberg, 3/14/25).

The ICE BofA 1–10 Year US Corporate Index returned -0.17% for the week and -0.44% month to date (MTD). The index underperformed like-duration Treasurys by -0.24% during the week and by -0.25% MTD (Bloomberg, 3/14/25).

IG mutual funds and ETFs experienced inflows of $1.8 billion, a decrease from the previous week’s inflows of $6.4 billion. Corporate-only funds experienced outflows of $1.7 billion, following the previous week’s inflows of $971 million (JPMorgan, 3/14/25).

Corporate one- to 10-year IG bond yields have fallen 14 bps YTD and ended last week at 5% (Bloomberg, 3/14/25).

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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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