1st Quarter Recap: Treasuries Shine
Q1 highlights from the fixed income markets:
- Fixed income returns were strong–driven by Treasuries–as investors sought stability amidst changing dynamics around global trade policies.
- Yield and spread movements throughout the quarter reflected general caution as markets anticipated potential impacts on supply chains, consumer prices, inflation, etc.
- The Bloomberg U.S. Aggregate Index (the Agg) returned 2.78% for the quarter, with every sub-sector posting positive absolute returns while underperforming similar-duration Treasuries.
- Corporate spreads widened in every sector across both the investment grade (IG) and high yield (HY) corporate spaces. Bonds in the consumer cyclical sector were hardest hit in the IG space, while Transportation bonds were the weakest in HY. Spreads in the consumer non-cyclical space held up well in both IG and HY. Financials were also an outperformer in HY.
- Municipal bonds posted negative returns in the quarter amid rising rates, predominantly on long muni bonds.
Read on for more details and analysis.
Market Summary
Treasury returns were strong in the first quarter; investment grade corporate bonds also showed solid returns despite spreads moving wider.
YIELDS & RETURNS (%) 1
| Duration (years) | Yield | Q1 Return | YTD Return | |
|---|---|---|---|---|
| Treasuries | 5.99 | 4.11 | 2.92 | 2.92 |
| Investment Grade Corporates | 7.03 | 5.15 | 2.31 | 2.31 |
| High Yield Corporates | 3.49 | 7.73 | 1.00 | 1.00 |
| Municipal Bonds | 6.40 | 3.85 | -0.22 | -0.22 |
U.S. Treasury Market
Treasury yields fell across the whole curve, most notably in the belly, between 2-year and 10-year Treasuries.
TREASURY YIELDS (%) 1
| Monthly Change | Year-to-Date Change | 2025-03-31 | 2024-02-28 | 2024-01-31 | 2024-12-31 | |
|---|---|---|---|---|---|---|
90-Day T-Bills | -0.03 | -0.03 | 4.30 | 4.30 | 4.29 | 4.33 |
| 2-year Treasury | -0.35 | -0.35 | 3.90 | 3.99 | 4.20 | 4.25 |
| 5-year Treasury | -0.43 | -0.43 | 3.96 | 4.01 | 4.33 | 4.39 |
| 10-year Treasury | -0.36 | -0.36 | 4.21 | 4.20 | 4.54 | 4.58 |
| 30-year Treasury | -0.20 | -0.20 | 4.58 | 4.47 | 4.80 | 4.78 |
Treasury returns were strong across all maturities. Duration was rewarded, as longer Treasuries outperformed.
TREASURY YIELDS (%) 1
| Duration (years) | 1Q25 Return | YTD | |
|---|---|---|---|
| 90-Day T-Bills | 0.23 | 1.04 | 1.04 |
| 2-year Treasury | 1.94 | 1.59 | 1.59 |
| 5-year Treasury | 4.58 | 3.00 | 3.00 |
| 10-year Treasury | 8.03 | 3.99 | 3.99 |
| 30-year Treasury | 16.43 | 4.28 | 4.28 |
| U.S. Treasury TIPS | 6.76 | 4.17 | 4.17 |
Broad Investment Grade
The Agg posted strong absolute returns while slightly underperforming similarduration Treasuries. All the Agg’s sub-sectors also finished with positive absolute returns and negative excess returns.
INVESTMENT GRADE INDEX & SECTOR RETURNS (%) 1
| Duration (years) | Yield | 1Q25 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| U.S. Aggregate | 6.14 | 4.60 | 2.78 | -0.23 | 2.78 | -0.23 |
| Treasuries | 5.99 | 4.11 | 2.92 | 0.00 | 2.92 | 0.00 |
| Agencies | 3.73 | 4.34 | 2.11 | 0.00 | 2.11 | 0.00 |
| Mortgage-Backed Securities | 5.84 | 4.92 | 3.06 | -0.07 | 3.06 | -0.07 |
| Asset-Backed Securities | 2.65 | 4.58 | 1.53 | -0.29 | 1.53 | -0.29 |
| Intermediate Corporates | 4.19 | 4.87 | 2.27 | -0.29 | 2.27 | -0.29 |
| Long Corporates | 12.87 | 5.72 | 2.38 | -1.99 | 2.38 | -1.99 |
Spreads widened across all investment grade corporate bond maturity buckets. Spreads also moved wider on MBS current coupon securities.
INVESTMENT GRADE SPREADS (basis points) 2
| Monthly Change | Year-to-Date Change | 2025-03-31 | 2024-02-28 | 2024-1-31 | 2024-12-31 | |
|---|---|---|---|---|---|---|
| 1-3 Yr Corporates | 6 | 6 | 58 | 52 | 49 | 52 |
| Intermediate Corporates | 12 | 12 | 83 | 76 | 69 | 71 |
| Long Corporates | 18 | 18 | 116 | 108 | 98 | 98 |
| MBS Current Coupon Spread | 5 | 5 | 130 | 123 | 127 | 125 |
Every investment grade ratings category posted positive absolute returns while underperforming Treasuries. Absolute returns were better in higher-rated categories.
INVESTMENT GRADE CORPORATE CREDIT QUALITY RETURNS (%) 2
| Duration (years) | Yield | 1Q25 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| AAA | 10.31 | 4.78 | 2.69 | -1.09 | 2.69 | -1.09 |
| AA | 7.91 | 4.79 | 2.43 | -0.80 | 2.43 | -0.80 |
| A | 6.97 | 5.00 | 2.38 | -0.76 | 2.38 | -0.76 |
| BBB | 6.87 | 5.35 | 2.21 | -0.94 | 2.21 | -0.94 |
Spreads widened by double digits in every investment grade corporate sector. The most significant widening occurred in the consumer cyclical space while the least amount of widening came in the consumer non-cyclical space.
INVESTMENT GRADE CORPORATE BOND SPREADS BY SECTOR (basis points) 2
| Monthly Change | Year-to-date Change | 2025-03-31 | 2025-02-28 | 2024-01-31 | 2024-12-31 | |
|---|---|---|---|---|---|---|
| Consumer Non-Cyclical | 10 | 10 | 84 | 78 | 71 | 74 |
| Technology | 12 | 12 | 77 | 72 | 64 | 65 |
| Energy | 17 | 17 | 109 | 101 | 92 | 92 |
| Consumer Cyclical | 21 | 21 | 93 | 82 | 70 | 72 |
| Transportation | 18 | 18 | 93 | 84 | 74 | 75 |
| Basic Industry | 12 | 12 | 104 | 96 | 90 | 92 |
| Communications | 15 | 15 | 112 | 104 | 96 | 97 |
| Capital Goods | 11 | 11 | 83 | 78 | 69 | 71 |
| Utilities | 21 | 21 | 103 | 97 | 88 | 82 |
| Financials | 12 | 12 | 95 | 87 | 79 | 82 |
High Yield
High yield absolute returns were positive in aggregate, although CCCs posted negative absolute returns. All HY ratings categories underperformed Treasuries. Spreads widened on all ratings buckets, most significantly in CCCs.
HIGH YIELD SECTOR RETURNS (%) 2
| Duration (years) | Yield | 1Q25 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| High Yield Corporates | 3.49 | 7.73 | 1.00 | -1.13 | 1.00 | -1.13 |
| BB | 3.72 | 6.45 | 1.49 | -0.73 | 1.49 | -0.73 |
| B | 3.29 | 7.77 | 0.74 | -1.30 | 0.74 | -1.30 |
| CCC | 3.18 | 10.95 | -0.44 | -2.52 | -0.44 | -2.52 |
HIGH YIELD OPTION-ADJUSTED SPREADS (OAS) (basis points) 2
| Monthly Change | Year-to-Date Change | 2025-03-31 | 2025-02-28 | 2024-01-31 | 2024-12-31 | |
|---|---|---|---|---|---|---|
| High Yield OAS | 60 | 60 | 347 | 280 | 261 | 287 |
| BB OAS | 40 | 40 | 219 | 178 | 155 | 179 |
| B OAS | 69 | 69 | 346 | 270 | 249 | 277 |
| CCC OAS | 118 | 118 | 676 | 547 | 520 | 558 |
Spreads moved significantly wider across all high yield sectors. Transportation bonds widened the most while financials and consumer non-cyclicals widened the least.
HIGH YIELD CORPORATE BOND SPREADS (OAS) BY SECTOR (basis points) 2
| Monthly Change | Year-to-date Change | 2025-03-31 | 2025-02-28 | 2025-01-31 | 2024-12-31 | |
|---|---|---|---|---|---|---|
| Consumer Non-Cyclical | 48 | 48 | 355 | 298 | 291 | 307 |
| Technology | 81 | 81 | 345 | 270 | 253 | 264 |
| Energy | 62 | 62 | 312 | 248 | 220 | 250 |
| Consumer Cyclical | 57 | 57 | 306 | 234 | 220 | 250 |
| Transportation | 169 | 169 | 460 | 310 | 268 | 292 |
| Basic Industry | 71 | 71 | 326 | 250 | 232 | 255 |
| Communications | 53 | 53 | 515 | 457 | 430 | 462 |
| Capital Goods | 62 | 62 | 304 | 228 | 210 | 243 |
| Utilities | 77 | 77 | 270 | 218 | 196 | 193 |
| Financials | 40 | 40 | 281 | 232 | 212 | 241 |
The number of issuers to have defaulted in the past 12 months fell in the quarter.
HIGH YIELD DEFAULT RATES
| Monthly Change | Year-to-date Change | 2025-03-31 | 2025-02-28 | 2024-01-31 | 2024-12-31 | |
|---|---|---|---|---|---|---|
| Number of Issuers in Default | -7 | -7 | 17 | 18 | 25 | 24 |
| Issuer Default Rate | -0.9% | -0.9% | 2.2% | 2.3% | 3.2% | 3.1% |
Municipals & Other
Municipal bond returns were mixed; short- and intermediate-duration categories were positive while long duration lost ground. Yields moved higher across much of the ratings/maturity categories, most significantly on long bonds.
MAJOR MUNICIPAL BOND INDEX RETURNS (%) 1
| YTW | Duration (years) | 1Q25 Return | YTD Return | |
|---|---|---|---|---|
| Short Duration (1-5 Years) | 3.11 | 2.67 | 0.98 | 0.98 |
| Intermediate (1-15 Years) | 3.50 | 4.79 | 0.39 | 0.39 |
| Long Duration (22+ Years) | 4.58 | 10.05 | -1.46 | -1.46 |
MUNICIPAL YIELDS BY RATING CATEGORY AND MATURITY (%) 2
| AAA | AAA M-3 | AA | AA M-3 | A | A M-3 | BBB | BBB M-3 | |
|---|---|---|---|---|---|---|---|---|
| 1 Year | 2.54 | 2.95 | 2.70 | 3.06 | 2.99 | 3.27 | 3.64 | 3.82 |
| 5 Year | 2.85 | 2.88 | 3.01 | 3.02 | 3.32 | 3.22 | 3.94 | 3.82 |
| 10 Year | 3.19 | 3.11 | 3.45 | 3.30 | 3.69 | 3.48 | 4.26 | 4.12 |
| 30 Year | 4.21 | 3.82 | 4.51 | 4.15 | 4.63 | 4.32 | 5.30 | 4.90 |
AA MUNICIPALS – HYPOTHETICAL AFTER-TAX YIELDS BY EFFECTIVE TAX RATE (%)
| 35% | 30% | 25% | 20% | |
|---|---|---|---|---|
| 1 Year | 4.16 | 3.86 | 3.60 | 3.38 |
| 5 Year | 4.62 | 4.29 | 4.01 | 3.76 |
| 10 Year | 5.30 | 4.92 | 4.60 | 4.31 |
| 30 Year | 6.94 | 6.44 | 6.01 | 5.64 |
Preferred stocks and convertibles posted negative returns in the quarter, while global Treasuries and emerging market bonds produced solid returns.
OTHER SECTOR RETURNS (%) 1,2
| Duration (years) | Yield | 1Q25 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| Emerging Markets | 5.15 | 8.49 | 1.59 | -1.14 | 1.59 | -1.14 |
| Global Treasuries (Unhedged) | 7.19 | 3.17 | 2.59 | 0.13 | 2.59 | 0.13 |
| S&P/LSTA Leveraged Loan 100 | 8.11 | 0.45 | 0.45 | |||
| Wells Fargo Hybrid & Pref. Securities Aggregate Index | 6.19 | -3.04 | -3.04 | |||
| U.S. Convertibles | 1.64 | 0.80 | -1.29 | -1.29 |
Bond Rating Categories
Standard & Poor’s Ratings Group
AAA An obligation rated “AAA” has the highest rating assigned by Standard & Poor's. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA An obligation rated “AA” differs from the highest rated obligations only in small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.
A An obligation rated “A” is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher- rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.
BBB An obligation rated “BBB” exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
Obligations rated “BB,” “B,” “CCC,” “CC” and “C” are regarded as having significant speculative characteristics. "BB" indicates the least degree of speculation and “C” the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB An obligation rated “BB” is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
B An obligation rated “B” is more vulnerable to nonpayment than obligations rated “BB,” but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC An obligation rated “CCC” is currently vulnerable to nonpayment and is dependent upon favorable business, financial and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC An obligation rated “CC” is currently highly vulnerable to nonpayment.
C A subordinated debt obligation rated “C” is currently highly vulnerable to nonpayment. The “C” rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued.
D An obligation rated “D” is in payment default. The “D” rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payment will be made during such grace period. The “D” rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
This update provides an overview of certain broad-based Fixed Income benchmarks and does not include performance of the Segall Bryant & Hamill Fixed Income styles. Past performance cannot guarantee future results. All investments involve risk, including the possible loss of capital. All opinions expressed in this material are solely the opinions of Segall Bryant & Hamill. You should not treat any opinion expressed as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of the manager’s opinions. The opinions expressed are based upon information the manager considers reliable, but completeness or accuracy is not warranted, and it should not be relied upon as such. Market conditions are subject to change at any time, and no forecast can be guaranteed. Any and all information perceived from this material does not constitute financial, legal, tax or other professional advice and is not intended as a substitute for consultation with a qualified professional. The manager’s statements and opinions are subject to change without notice, and Segall Bryant & Hamill is not under any obligation to update or correct any information provided in this material.
Index performance does not reflect fees or expenses that investors typically pay to buy or sell securities. It is not possible to invest directly in an index. SBH is a wholly owned subsidiary of Corient Holdings Inc.
1 Source: Bloomberg.
2 Source: Bank of America Merrill Lynch.
3 Hypothetical yields are calculated as the AA municipal yield divided by (1-tax rate). Actual tax-adjusted yields will depend on individual tax circumstances.
4 Source: Standard & Poor’s.
