Highlights from the fixed income markets:
- The Bloomberg U.S. Aggregate Index (the Agg) delivered its fourth consecutive quarter of positive returns while returning 7.30% for the full year, outperforming similar-duration Treasuries. For the full year, every sub-segment showed positive excess returns, led by mortgage-backed securities.
- Treasury yields declined across all but the long end of the curve, with the biggest moves occurring from T-Bills through 5-year maturities.
- Investment grade corporate sector spreads were flat to modestly wider in the quarter. For the full year, all sectors tightened slightly except technology and utilities, which both widened.
- High yield corporate sector spreads varied significantly. Over the full year, communications bonds tightened by 115 basis points (bps), while transportation bonds widened by 71 bps.
- Fed Funds futures currently imply roughly two quarter-point rate cuts from the Federal Reserve in 2026.
Market Summary
Fixed income markets closed 2025 on a strong note, with positive returns across all major categories — led by high yield corporates.
YIELDS & RETURNS (%) 1
| Duration (years) | Yield | Q4 Return | YTD Return | |
|---|---|---|---|---|
| Treasuries | 5.90 | 3.89 | 0.90 | 6.32 |
| Investment Grade Corporates | 6.90 | 4.81 | 0.84 | 7.77 |
| High Yield Corporates | 3.01 | 6.53 | 1.31 | 8.62 |
| Municipal Bonds | 6.24 | 3.60 | 1.56 | 4.25 |
U.S. Treasury Market
Treasury yields declined across most of the curve in 2025, with the sharpest moves occurring at the short end. Long-term yields, however, rose notably in December and finished the year modestly above their starting levels.
TREASURY YIELDS (%) 1
| Q4 Change | Year-to-Date Change | 2025-12-31 | 2025-11-30 | 2025-10-31 | 2025-09-30 | |
|---|---|---|---|---|---|---|
| 90-Day T-Bills | -0.31 | -0.69 | 3.63 | 3.79 | 3.81 | 3.94 |
| 2-year Treasury | -0.14 | -0.78 | 3.47 | 3.49 | 3.60 | 3.61 |
| 5-year Treasury | -0.03 | -0.68 | 3.71 | 3.60 | 3.71 | 3.74 |
| 10-year Treasury | 0.00 | -0.43 | 4.15 | 4.02 | 4.09 | 4.15 |
| 30-year Treasury | 0.10 | 0.05 | 4.83 | 4.67 | 4.66 | 4.73 |
Returns were positive across all but long end of the Treasury curve in the quarter. For the full year, all Treasury maturities generated positive returns.
TREASURY RETURNS (%) 1
| Duration (years) | Q4 Return | YTD | |
|---|---|---|---|
| 90-Day T-Bills | 0.25 | 0.99 | 4.23 |
| 2-year Treasury | 1.95 | 1.12 | 4.95 |
| 5-year Treasury | 4.61 | 1.07 | 7.15 |
| 10-year Treasury | 8.20 | 1.10 | 8.19 |
| 30-year Treasury | 16.15 | -0.50 | 3.73 |
| U.S. Treasury TIPS | 6.49 | 0.13 | 7.01 |
Investment Grade
The Agg wrapped up its strongest year since 2020 by posting its 4th straight quarter with a return exceeding 1%. For the full year, every sub-segment showed positive excess returns, led by mortgage-backed securities.
INVESTMENT GRADE INDEX & SECTOR RETURNS (%) 1
| Duration (years) | Yield | Q4 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| U.S. Aggregate | 6.00 | 4.32 | 1.10 | 0.16 | 7.30 | 0.78 |
| Treasuries | 5.90 | 3.89 | 0.90 | 0.00 | 6.32 | 0.00 |
| Agencies | 3.85 | 3.96 | 1.17 | 0.08 | 6.11 | 0.31 |
| Mortgage-Backed Securities | 5.57 | 4.63 | 1.71 | 0.69 | 8.58 | 1.71 |
| Asset-Backed Securities | 2.85 | 4.09 | 1.25 | 0.16 | 5.93 | 0.55 |
| Intermediate Corporates | 4.14 | 4.42 | 1.29 | 0.13 | 7.95 | 1.31 |
| Long Corporates | 12.76 | 5.64 | -0.11 | -0.39 | 7.44 | 1.04 |
Investment-grade spreads widened over the quarter but ultimately ended the year marginally tighter than where they began.
INVESTMENT GRADE SPREADS (basis points) 1
| Q4 Change | Year-to-Date Change | 2025-12-31 | 2025-11-3- | 2025-10-31 | 2025-09-30 | |
|---|---|---|---|---|---|---|
| 1-3 Yr Corporates | 5 | -1 | 51 | 51 | 49 | 46 |
| Intermediate Corporates | 4 | -1 | 70 | 73 | 70 | 66 |
| Long Corporates | 4 | -4 | 94 | 97 | 96 | 90 |
| MBS Current Coupon Spread | -16 | -36 | 89 | 102 | 103 | 105 |
Returns in the investment grade corporate space were somewhat biased toward lower quality, as BBBs and As outperformed AAs and AAAs.
INVESTMENT GRADE CORPORATE CREDIT QUALITY RETURNS (%) 1
| Duration (years) | Yield | Q4 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| AAA | 10.20 | 4.68 | 0.09 | -0.40 | 6.38 | 0.09 |
| AA | 8.01 | 4.62 | 0.39 | -0.31 | 6.66 | 0.45 |
| A | 6.88 | 4.67 | 0.92 | 0.04 | 7.84 | 1.28 |
| BBB | 6.67 | 5.00 | 0.85 | -0.07 | 7.93 | 1.26 |
IG sector spreads were flat to wider in the quarter. No sector realized tighter spreads. Technology sector spreads widened the most.
For the year, all sectors tightened outside of technology and utilities.
INVESTMENT GRADE CORPORATE BOND SPREADS BY SECTOR (basis points) 1
| Q4 Change | YTD Change | 2025-12-31 | 2025-11-30 | 2025-10-31 | 2025-09-30 | |
|---|---|---|---|---|---|---|
| Consumer Non-Cyclical | 0 | -6 | 67 | 70 | 70 | 67 |
| Technology | 14 | 11 | 76 | 76 | 72 | 62 |
| Energy | 1 | -3 | 90 | 94 | 93 | 89 |
| Consumer Cyclical | 0 | -1 | 71 | 75 | 74 | 71 |
| Transportation | 1 | -3 | 72 | 76 | 75 | 71 |
| Basic Industry | 4 | -4 | 88 | 93 | 87 | 84 |
| Communications | 9 | -2 | 95 | 97 | 97 | 86 |
| Capital Goods | 1 | -8 | 63 | 67 | 64 | 62 |
| Utilities | 4 | 2 | 85 | 88 | 84 | 81 |
| Financials | 4 | -5 | 78 | 80 | 78 | 74 |
High Yield
High yield returns were strong in the quarter for BBs and Bs. CCs posted slightly positive absolute returns while underperforming Treasuries. For the full year, all HY ratings categories were strong in both absolute and excess terms.
HY spreads were mixed for the quarter, with Bs and CCCs widening. For the full year, CCCs widened while BBs and Bs tightened.
HIGH YIELD SECTOR RETURNS (%) 1
| Duration (years) | Yield | Q4 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| High Yield Corporates | 3.01 | 6.53 | 1.31 | 0.16 | 8.62 | 2.60 |
| BB | 3.26 | 5.56 | 1.51 | 0.36 | 9.02 | 2.87 |
| B | 2.70 | 6.53 | 1.58 | 0.42 | 8.44 | 2.56 |
| CCC | 2.71 | 9.83 | 0.18 | -0.96 | 8.27 | 2.37 |
HIGH YIELD OPTION-ADJUSTED SPREADS (OAS) (basis points) 1
| QTD Change | Year-to-Date Change | 2025-12-31 | 2025-11-30 | 2025-10-31 | 2025-09-30 | |
|---|---|---|---|---|---|---|
| High Yield OAS | -1 | -21 | 266 | 269 | 281 | 267 |
| BB OAS | -3 | -14 | 165 | 161 | 171 | 168 |
| B OAS | 5 | -9 | 268 | 274 | 286 | 263 |
| CCC OAS | 11 | 57 | 615 | 625 | 611 | 604 |
Spread performance was mixed over both the quarter and the full year. The Communications sector posted the most pronounced tightening move, while technology experienced the largest widening.
HIGH YIELD CORPORATE BOND SPREADS (OAS) BY SECTOR (basis points) 1
| Q4 Change | YTD Change | 2025-12-31 | 2025-11-30 | 2025-10-31 | 2025-09-30 | |
|---|---|---|---|---|---|---|
| Consumer Non-Cyclical | -13 | -61 | 246 | 233 | 246 | 259 |
| Technology | 43 | 52 | 316 | 330 | 296 | 273 |
| Energy | 3 | 21 | 271 | 264 | 291 | 268 |
| Consumer Cyclical | -1 | 2 | 252 | 265 | 269 | 253 |
| Transportation | 10 | 71 | 363 | 371 | 397 | 353 |
| Basic Industry | 15 | 35 | 291 | 298 | 310 | 276 |
| Communications | 4 | -115 | 347 | 355 | 350 | 343 |
| Capital Goods | -36 | -30 | 213 | 209 | 272 | 249 |
| Utilities | -12 | -46 | 147 | 127 | 159 | 159 |
| Financials | 0 | -18 | 224 | 225 | 238 | 224 |
The number of issuers to default in the past year increased by 1 in the quarter while falling year-to-date. The default rate remains low.
HIGH YIELD DEFAULT RATES 2
| Q4 | YTD Change | 2025-12-31 | 2025-11-30 | 2025-10-31 | 2025-09-30 | |
|---|---|---|---|---|---|---|
| Number of Issuers in Default | 1 | -3 | 17 | 16 | 16 | 18 |
| Issuer Default Rate | 0.1% | -0.4% | 2.2% | 2.1% | 2.1% | 2.4% |
Municipals & Other
Municipal bond performance was mixed for the quarter, with long-duration munis posting losses and lagging their short- and intermediate-term counterparts. Over the full year, long munis delivered positive returns but continued to trail the shorter-maturity categories.
MAJOR MUNICIPAL BOND INDEX RETURNS (%) 1
| YTW | Duration (years) | Q4 Return | YTD Return | |
|---|---|---|---|---|
| Short Duration (1-5 Years) | 2.78 | 2.75 | 0.32 | 4.35 |
| Intermediate (1-15 Years) | 3.14 | 4.71 | 0.28 | 5.18 |
| Long Duration (22+ Years) | 4.59 | 9.65 | -0.33 | 1.95 |
MUNICIPAL YIELDS BY RATING CATEGORY AND MATURITY (%) 1
| AAA | AA | A | BBB | |||||
|---|---|---|---|---|---|---|---|---|
| 12/31 | 9/30 | 12/31 | 9/30 | 12/31 | 9/30 | 12/31 | 9/30 | |
| 1 Year | 2.47 | 2.28 | 2.53 | 2.51 | 2.80 | 2.85 | 3.75 | 3.69 |
| 5 Year | 2.37 | 2.29 | 2.53 | 2.48 | 2.80 | 3.06 | 3.65 | 3.87 |
| 10 Year | 2.71 | 2.90 | 2.96 | 3.13 | 3.28 | 3.73 | 4.09 | 4.56 |
| 30 Year | 4.13 | 4.24 | 4.45 | 4.54 | 4.79 | 5.14 | 5.61 | 5.89 |
AA MUNICIPALS – HYPOTHETICAL AFTER-TAX YIELDS BY EFFECTIVE TAX RATE (%) 3
| 35% | 30% | 25% | 20% | |
|---|---|---|---|---|
| 1 Year | 3.89 | 3.61 | 3.37 | 3.16 |
| 5 Year | 3.90 | 3.62 | 3.38 | 3.17 |
| 10 Year | 4.56 | 4.23 | 3.95 | 3.70 |
| 30 Year | 6.84 | 6.35 | 5.93 | 5.56 |
“Other” sector returns were mixed in the quarter. Preferred stock returns lagged, while emerging market bonds were strong. For the full year, emerging markets and U.S. convertibles produced strong returns.
OTHER SECTOR RETURNS (%) 1,4
| Duration (years) | Yield | Q4 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| Emerging Markets | 5.11 | 7.05 | 4.72 | 3.68 | 13.64 | 7.14 |
| Global Treasuries (Unhedged) | 6.93 | 3.18 | -0.44 | 0.17 | 6.82 | 0.46 |
| S&P/LSTA Leveraged Loan 100 | 6.97 | 1.84 | 7.24 | |||
| Wells Fargo Hybrid & Pref. Securities Aggregate Index | 6.91 | -1.54 | -1.76 | |||
| U.S. Convertibles | 1.49 | 0.97 | 0.03 | 17.78 |
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.
For educational purposes only. This update provides an overview of certain broad-based Fixed Income benchmarks and does not include performance of the CI Segall Bryant & Hamill Asset Management Fixed Income styles. Past performance cannot guarantee future results. All investments involve risk, including the possible loss of capital. One cannot invest directly in an index. 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. Advisory services are offered through Segall Bryant and Hamill LLC, a registered investment adviser (“RIA”) with the U.S. Securities and Exchange Commission (“SEC”).
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.
