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.

January 14, 2025

Macro update

Last week markets digested the first major release of economic data from December, including payroll numbers and unemployment data. Non-farm payrolls increased by 256,000 compared to an expected 165,000. Unemployment declined from 4.2% to 4.1% (Bloomberg, 1/13/25).

In addition to the jobs data, we also saw the release of the Fed meeting minutes from December 18. Its largely expected the Federal Open Markets Committee will keep rates unchanged in the next meeting on January 28. The futures market is pricing in only one cut of 25 basis points (bps) for all of 2025 (Bloomberg, 1/13/25).

This week we’ll see Consumer Price Index (CPI) and Produce Price Index (PPI) data from December. These inflation metrics continue to be an important part of the Fed’s decision making about future rate adjustments. It’s expected that Core CPI month over month will increase by 0.30% and Core PPI will increase 0.30% as well (Bloomberg, 1/13/25).

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 soared across the curve last week, with two- and five-year maturities increasing eight and 11 bps, respectively, while 10- and 30-year maturities ended the week 13 and 17 bps higher, respectively. AAA-rated benchmark tax-exempt yields are now between eight and 16 bps higher than at the start of the year (Refinitiv MMD, 1/10/25).

The Bloomberg Municipal Bond Index decreased 0.95% last week, underperforming Treasurys and taking year-to-date (YTD) performance to -0.66%. The Bloomberg US Treasury Index lost 0.76%, cutting YTD performance to -0.87% (Bloomberg, 1/10/25).

Muni relative value held steady at slightly above fair value, with the 10-year benchmark muni yield at 67% of the 10-year Treasury yield, which is two ratios higher than the 2024 average (Refinitiv MMD, 1/10/25).

Five-, 10- and 15-year A-rated municipal yields were 3.15%, 3.52% and 3.87%, respectively, as of Friday’s close. Related taxable-equivalent yields are 5.32%, 5.95% and 6.54%, respectively, assuming the highest combined federal tax rate of 40.8% (Refinitiv MMD, Parametric, 1/10/25).

Muni mutual funds experienced inflows of $842 million last week, with open-end funds bringing in $607 million. That was supplemented by ETF inflows of $235 million (JPMorgan, 1/8/25).

The primary calendar is back in full swing this week, with a whopping $12 billion in new issues scheduled to enter the market (Ipreo, 1/10/25).

Corporate bond update

US investment-grade (IG) corporate yields increased across the curve last week. Two-, five- and 10-year yields rose 11, 17 and 19 bps, respectively. Corporate yields are higher across the curve YTD. Two-, five- and 10-year yields were up 12, 20 and 22 bps, respectively (Bloomberg, 1/10/25).

The ICE BofA 1–10 Year US Corporate Index returned -0.55% for the week and -0.6% month to date (MTD). The index lagged like-duration Treasurys by -0.01% during the week and returned inline MTD (Bloomberg, 1/10/25).

IG mutual funds and ETFs experienced inflows of $6.3 billion, an increase from the previous week’s outflows of $1.7 billion. Corporate-only funds experienced inflows of $900 million, following the previous week’s outflows of $682 million (JPMorgan, 1/10/25).

Corporate one- to 10-year IG bond yields have risen 17 bps YTD and ended last week at 5.3% (Bloomberg, 1/10/25).

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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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