Highlights from the fixed income markets:

 

  • Treasury yields moved higher in April, continuing the upward migration that started at the beginning of March. 
  • The Bloomberg U.S. Aggregate Bond Index (The Agg) posted a small gain, supported by positive excess returns across all sub-sectors.
  • Spreads tightened across every investment grade and high yield sector.
  • Lower-quality bonds outperformed, as BBBs led IG ratings categories and CCCs led in HY.
  • The high yield default rate edged up to 3.1% as the number of issuers in default continued to rise. The last time the HY default rate exceeded 3% was in April 2024.
  • Municipal bonds delivered positive returns across the curve, led by long duration munis, as yields were mixed but generally stable month over month.
  • In Jay Powell’s final meeting as Fed chairman, the Federal Open Market Committee left short-term rates unchanged. Kevin Warsh’s term as chair will begin in mid-May.

Market Summary

Treasury returns were slightly negative as yields drifted higher, while corporates and municipals posted gains. High yield spreads tightened significantly, driving strong performance.

YIELDS & RETURNS (%) 1

U.S. Treasury Market

Yields rose across most of the curve in April. Short term bills were essentially unchanged.

TREASURY YIELDS (%) 1

Longer duration Treasuries declined as rates moved higher, while T Bills continued to deliver steady positive returns. Year to date performance remains negative across most maturities.

TREASURY RETURNS (%) 1

Investment Grade

The Agg posted a small absolute gain while outperforming similar-duration Treasuries. Corporates, agencies, MBS, and ABS all outperformed Treasuries.

INVESTMENT GRADE INDEX & SECTOR RETURNS (%) 1

IG spreads tightened 8-10 bps across the curve, reflecting improved risk sentiment. MBS current coupon spreads also narrowed during the month.

INVESTMENT GRADE SPREADS (basis points) 1

Lower quality IG credits outperformed, with BBBs leading monthly returns. All rating tiers generated positive excess returns.

INVESTMENT GRADE CORPORATE CREDIT QUALITY RETURNS (%) 1

IG spreads tightened broadly, led by basic industry and financials. Most sectors remain only modestly changed year to date.

INVESTMENT GRADE CORPORATE BOND SPREADS BY SECTOR (basis points) 1

Hight Yield

High yield delivered strong gains, with CCCs leading performance. HY spreads tightened sharply across rating categories.

HIGH YIELD SECTOR RETURNS (%) 1

HIGH YIELD OPTION-ADJUSTED SPREADS (OAS) (basis points) 1

HY spreads tightened sharply across all sectors, with transportation and financials seeing the largest moves. Energy continued its strong year to date improvement.

HIGH YIELD CORPORATE BOND SPREADS (OAS) BY SECTOR (basis points) 1

The default rate edged up to 3.1% as the number of issuers in default increased. Defaults continue to trend gradually higher.

HIGH YIELD DEFAULT RATES 2

Municipals & Other

Munis posted positive returns across the curve, led by long duration bonds. Yields were mixed but generally stable month over month.

MAJOR MUNICIPAL BOND INDEX RETURNS (%) 1

MUNICIPAL YIELDS BY RATING CATEGORY AND MATURITY (%) 1

AA MUNICIPALS – HYPOTHETICAL AFTER-TAX YIELDS BY EFFECTIVE TAX RATE (%) 3

Emerging markets outperformed with strong monthly gains, while preferreds and loans also advanced. Convertibles surged alongside equity markets.

OTHER SECTOR RETURNS (%) 1,4

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, (“Segall Bryant & Hamill”) 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.