April Recap: Treasury Yields On the Rise Again
April highlights from the fixed income markets:
- Yields rose across the Treasury curve in April, with the most significant moves coming in the 5- and 10-year portions. Treasury returns were negative across all maturities but T-Bills, which continue to benefit from their low duration and the highest yields on the curve.
- The Bloomberg U.S. Aggregate Index (the Agg) lost -2.53% in April and underperformed similar-duration Treasuries. Every major sub-sector produced negative absolute returns for the month. Mortgage-backed securities (MBS) were the worst performer relative to Treasuries.
- Investment grade (IG) corporate bond spreads tightened marginally across all tenors and nearly every sector.
- High yield (HY) corporate bond spreads were mixed. Sectors moving wider were Communications and Utilities; sectors with tighter spreads were Energy and Basic Industrials.
Read on for more details and analysis.
Market Summary
All major fixed income categories posted negative absolute returns in April, led lower by investment grade corporates.
U.S. Treasury Market
Treasury yields rose across the curve, most notably in the 5-year and 10-year portions. T-Bill yields remain the highest on the curve.
The shortest part of the Treasury curve continues to benefit from higher rates. T-Bills were the only Treasury category to post positive returns in the month. Every other maturity category lost ground.
Broad Investment Grade
The Agg lost over 2.5% and underperformed similar-duration Treasuries. Mortgage-backed securities (MBS) were the weakest component of the Agg versus similar-duration Treasuries.
Spreads on IG corporates continued grinding tighter in April. Current-coupon MBS spreads widened.
All IG ratings categories posted losses in April. Longer duration and higher quality categories performed worse, both in absolute and excess returns.
IG corporate spreads were moderately tighter across all sectors other than Capital Goods, which were unchanged for the month.
High Yield
High yield returns were negative across all ratings categories. Single B and CCC spreads widened, while BB spreads tightened slightly. Only CCCs outperformed similar-duration Treasuries.
Spread moves were mixed across HY sectors. Energy and Basic Industry sector spreads tightened the most, while Communications and Utilities realized the most significant widening.
The high yield default rate dropped slightly in April, remaining low by historical measures.
Municipals & Other
Municipal bond returns were negative for the month. Longer duration underperformed shorter duration muni bonds. Yields moved wider across all ratings and tenors.
Leveraged loans were one of the few fixed income sectors to generate positive returns in April. Global bonds, preferred stocks and convertibles all posted losses.