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 22, 2025

Macro update

Fixed income volatility began to settle down last week, but that relative calm followed yield swings we haven’t seen in many years as the market responded to US tariff policy announcements. The 10-year Treasury yield has moved over 50 basis points (bps) during the past two weeks and closed on Thursday with a yield only slightly higher than its pre-tariff-announcements level (Bloomberg, 4/17/2025).

US banks reported strong first quarter earnings but struck a cautious tone on conference calls, citing macroeconomic uncertainty. The strong first-quarter earnings—driven largely by equity trading—suggest that the banking system entered the recent volatility in solid shape. Credit quality remained firm, and deposit bases were stable (Bloomberg, 4/17/2025).

On the data front, March nominal headline retail sales rose 1.4% month-over-month, as expected, driven by robust auto and building materials. February’s sales data had shown a 0.3% gain. Housing starts declined 11.4% in March, more than twice the 5.4% expected and more than reversing February’s revised 9.8% increase.

The Federal Reserve continues to monitor market liquidity. Fed funds futures are now pricing in at least three rate cuts for this year, with only a 16% chance of a rate reduction at the upcoming Federal Open Markets Committee meeting on May 7 (Bloomberg, 4/17/2025).

April 25, 2025

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

Municipal bond update

Benchmark AAA municipal yields declined materially across the yield curve last week amid less volatility than prior weeks. Two-year maturity yields decreased 21 bps, five- and 10-year yields each dipped 22 bps and the 30-year shed 18 bps. While these are significant moves, they pale in comparison to the prior week’s 40- and 50-bps midweek moves.

Benchmark tax-exempt yields remain solidly higher since the start of the year, with five- and 10-year maturities each up by 28 bps, while 30-year yields are up by a robust 56 bps. Benchmark 10-year yields have backed away from the new decade high of 3.66% and stand at 3.44% (Refinitiv MMD, 4/17/2025).

The Bloomberg Municipal Bond Index gained 1.09% last week, cutting the negative year-to-date (YTD) total return to -1.69% YTD. Treasurys had a somewhat less strong week and added 0.81%, bringing that YTD total to 2.43% (Bloomberg, 4/17/2025).

Muni relative value is also returning to normalcy and ended at 79% by Thursday’s close. This percentage of the 10-year Treasury yield metric remains sharply above the two-year average of 66% (Refinitiv MMD, 4/17/2025).

Five- to 15-year A-rated municipal yields ranged from 3.35% to 4.23%, with related taxable-equivalent yields ranging from 5.66% to 7.15%, assuming a combined federal tax rate of 40.8% (Refinitiv MMD, Parametric, 4/17/2025).

Mutual funds experienced their sixth consecutive week of outflows, with open-end funds losing $1.9 billion, while ETFs enjoyed a moderate $659 million inflow (LSEG Lipper, JP Morgan 4/17/2025).

This week’s municipal new-issue calendar begins with more than $12 billion scheduled but may rise to as much as $15 billion because of postponed deals re-entering the market after the recent downside volatility. Seasonally-heavy supply has been a primary factor behind the March and April muni underperformance, which continues (Ipreo, 4/17/2025).

Corporate bond update

US investment-grade (IG) corporate yields fell across the curve last week. Two-, five- and 10-year yields decreased 17, 22 and 18 bps, respectively. Corporate yields are mixed across the curve YTD. Two- and five- year yields are down 11 and 10 bps, respectively while 10-year yields are unchanged (Bloomberg, 4/17/2025).

The ICE BofA 1–10 Year US Corporate Index returned 1.09% for the week and -0.55% month to date (MTD). The index outperformed like-duration Treasurys by 0.29% during the week and have underperformed by -0.65% MTD (Bloomberg, 4/17/2025).

IG mutual funds and ETFs experienced outflows of $7.1 billion, an increase in flows from the previous week’s outflows of $9.8 billion. Corporate-only funds experienced outflows of $695 million, following the previous week’s outflows of $4.7 billion (JPMorgan, 4/17/2025).

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INSIGHT

Corporate Bond Market Insight

Each month we recap the corporate bond market’s performance, delving into the numbers and offering forward-looking commentary. Click below for the latest edition.

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INSIGHT

Municipal Bond Market Insight

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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