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 23, 2024

Macro update

Last week the economic data was lighter but did feature retail sales and housing data. March retail sales data (excluding auto sales) increased by 1.1%, compared with an expected 0.5%. Existing home sales in March fell by 4.3%, but the number of homes sold remained historically high (Bloomberg, 4/19/2024).

Federal Reserve chair Powell spoke last Tuesday and indicated that monetary policy may need be to be restrictive for longer than originally anticipated. Powell’s focus was on inflation data and noted that “if higher inflation does persist, we can maintain the current level of restriction for as long as needed” (Reuters, 4/16/2024).

This week’s data releases feature manufacturing, durable goods and personal consumption expenditures (PCE)—the Fed’s preferred metric on inflation. Current expectations for core PCE are 0.3% month over month, the same level as March. We expect year-over-year core PCE to decline slightly, however, to 2.7% from 2.8% (Bloomberg, 4/19/2024).

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Municipal bond update

Benchmark AAA muni yields increased mildly last week. Two-year yields were four basis points (bps) higher. Five- and 10-year yields rose eight and seven bps, respectively, while 30-year yields rose seven bps (Refinitiv MMD, 4/19/2024).

The Bloomberg Municipal Bond Index lost 0.29% last week, placing year-to-date (YTD) performance at -1.4%. The Bloomberg US Treasury Index lost 0.42%, taking YTD performance to -3.04% (Bloomberg, 4/19/2024).

Municipal mutual funds reported $1.5 billion in outflows for the week. Open-end mutual fund outflows contributed $658 million, and ETF outflows added $815 million to that negative total (JPMorgan, 4/17/2024).

Five-, 10- and 15-year A-rated municipal yields were 2.93%, 3.05% and 3.57%, respectively, as of the April 19 close. Related taxable-equivalent yields were 4.95%, 5.91% and 6.03%, respectively, assuming the highest rate of federal tax of 40.8% (Refinitiv MMD, Parametric, 4/19/2024).

Corporate bond update

US investment-grade (IG) corporate yields were mixed across the curve last week. Two- and 10-year yields rose three bps and 10 bps, respectively, while five-year yields decreased by six bps. Corporate yields are higher across the curve YTD, with two-, five- and 10-year yields up 48, 64 and 64 bps, respectively (Bloomberg, 4/19/2024).

The ICE BofA 1–10 Year US Corporate Index returned -0.38% for the week and -1.37% month to date (MTD). The index underperformed like-duration Treasurys on an excess-return basis by 0.1% for the week and outperformed by 0.03% MTD (Bloomberg, 4/19/2024).

IG mutual funds and ETFs experienced inflows of $901 million, a decrease from last week’s inflows of $4.5 billion. Corporate-only funds experienced outflows of $1.6 billion following last week’s outflows of $341 million (JPMorgan, 4/19/2024).

Corporate one-to-10-year IG bond yields have risen 60 bps YTD and ended last week at 5.7%, a YTD high (Bloomberg, 4/19/2024).

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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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