November Fixed Income Market Update

November highlights from the fixed income markets:

  • Following the removal of uncertainty by the announcement of the Treasury’s financing plans in late October, Treasury yields fell across all maturities, with the most significant moves occurring in the 5 years and longer maturity categories.
  • As a result, the Bloomberg U.S. Aggregate Index (the Agg) ended a six-month losing streak and snapped back vigorously in November, posting a gain of 4.53% – the best monthly return for the Agg since 1985. With the strong performance this month, year-to-date returns are positive.
  • Amid the falling rates, duration was rewarded. Long Treasuries returned 9.7% for the month and long corporates returned 10.9%.
  • Spreads tightened by double digits across every investment grade (IG) and high yield (HY) sector. The best-performing sector in IG was Communications, while Financials was the strongest HY sector.
  • The high yield default rate was unchanged in November and remains low by historical standards.

 

Read on for more details and analysis.

Market Summary

After several months of uninspiring returns, the fixed income markets bounced back in November in a big way, led by municipal bonds with a monthly return exceeding 6%.

U.S. Treasury Market

Treasury yields fell across the curve, most notably in the 5 year space and longer.

Returns were strong across all Treasury maturities, with a bias toward longer duration categories.

Broad Investment Grade

The Agg posted its strongest single month since 1985. Every  sub-category performed well, in both absolute and excess (relative to Treasuries) terms, with the strongest returns generated by long corporates.

Spreads on IG bonds tightened across all maturity buckets. Mortgage-backed security spreads also tightened.

Returns were robust across all IG ratings categories.

Every IG corporate sector realized double-digit spread compression. The strongest sector was Communications.

High Yield

High yield corporates added to their positive returns for the year while outperforming similar-duration Treasuries. Returns were similar across all ratings categories.

Spreads tightened across every HY corporate sector, led by Financials.

The number of HY issuers to have defaulted in the past 12 months remained unchanged in November.

Municipals & Other

Municipal bonds enjoyed one of the strongest months on record. Yields fell across all ratings and maturity categories.

Global bond markets also posted strong returns, along with leveraged loans, preferred stocks and convertibles.

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.