August Recap: Like the Summer Weather, Fixed Income Remains Hot
August highlights from the fixed income markets:
- Yields fell across the Treasury curve for a second consecutive month. Themost significant yield moves came in the 2- and 5-year part of the curve. The 2s/10s curve inversion (the excess of the 2-year Treasury yield over the 10-year yield) ended the month at just 1 bp, the smallest such inversion since July of 2022.
- Returns were strong across the entire fixed income landscape. The Bloomberg U.S. Aggregate Index (the Agg) gained 1.4%, outperforming similar-duration Treasuries. Treasury returns were positive across all maturities, led by the long end.
- Corporate bonds, both investment grade (IG) and high yield (HY), produced positive absolute and excess returns for the month. Mortgage-backed securities (MBS) also performed well, outperforming Treasuries.
- Within IG corporates, spread changes were moderate – 2 basis points (bps) or less – in every sector. HY spreads were slightly more volatile, with most sector spreads moving tighter.
Read on for more details and analysis.
Market Summary
The major fixed income categories performed well in August, led by corporate bonds, both HY and IG.
U.S. Treasury Market
Treasury yields fell across the entire curve for the second consecutive month.
Treasury returns were strong, most notably on the long end of the Treasury curve.
Broad Investment Grade
The Agg had a strong month in both absolute and excess terms. Every sub-sector of the Agg produced positive absolute returns, with all but agency MBS outperforming similar-duration Treasuries.
Spread moves on corporate bonds were minimal in August. MBS current coupon spreads tightened.
Returns were strong in both absolute and excess terms across all IG ratings categories.
Spread moves were muted across all IG sectors. No sector realized a spread move of greater than 3 bps.
High Yield
HY returns were largely similar across ratings categories, with CCCs slightly outperforming higher ratings categories. Spreads tightened across all ratings categories.
Spreads moved tighter across all but three HY sectors. The Technology and Utility sectors were the top performers, while Transportation and Basic Industry sectors were the laggards.
The number of issuers to have defaulted in the past 12 months rose by 2. The default rate remains low by historical standards.
Municipals & Other
Municipal bonds produced positive returns in August. Yields dropped across most ratings and tenors.
The “other” fixed-income related asset classes all performed well in August.
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.
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.