Highlights from the fixed income markets:

 

  • The Bloomberg U.S. Aggregate Index posted strong gains in February, supported by falling Treasury yields. Performance was led by rate‑sensitive sectors, including Treasuries and municipal bonds.
  • Treasury yields declined across the curve, with the largest moves occurring in intermediate and long maturities. As a result, longer‑duration Treasuries generated the strongest total returns during the month.
  • Investment grade corporate spreads widened modestly across sectors but remain near multi‑year tights. Declining rates helped offset spread pressure, resulting in positive returns for investment grade bonds.
  • High yield performance was modest in February, led by BB‑rated bonds. Spreads widened overall, with greater pressure in lower‑quality segments and increased dispersion across sectors.
  • Municipal bonds delivered strong returns across maturities, benefiting from declining Treasury yields and favorable technical conditions. Longer‑duration municipals outperformed shorter maturities.
  • High yield default rates edged slightly higher during the month but remain low by historical standards, reflecting generally stable credit fundamentals.

Market Summary

Fixed income sectors delivered broadly positive returns in February as Treasury yields declined across most maturities. Rate‑sensitive sectors, including Treasuries and municipals, outperformed while the most credit-sensitive sector (high yield) produced modest gains.

YIELDS & RETURNS (%) 1

U.S. Treasury Market

Treasury yields declined across the curve in February, with the largest moves occurring in intermediate and long maturities. The yield curve remained upward sloping.

TREASURY YIELDS (%) 1

Treasuries generated strong total returns in February, led by longer‑duration bonds as yields moved lower. Returns increased steadily with maturity, with the 10‑ and 30‑year segments outperforming shorter‑dated securities.

TREASURY RETURNS (%) 1

Investment Grade

Investment grade sectors posted positive returns, supported by declining Treasury yields and stable credit conditions. Treasuries and long corporates were the strongest absolute performers.

INVESTMENT GRADE INDEX & SECTOR RETURNS (%) 1

Investment grade spreads widened modestly across maturities in February but remain near multi‑year tights. Longer‑dated corporates experienced the largest spread increases, reflecting mildly higher volatility.

INVESTMENT GRADE SPREADS (basis points) 1

All investment grade credit qualities produced positive returns in February, with higher‑rated bonds benefiting most from falling rates. Duration‑adjusted performance lagged Treasuries.

INVESTMENT GRADE CORPORATE CREDIT QUALITY RETURNS (%) 1

Spreads widened across all investment grade sectors, led by technology and financials. Despite the monthly increase, sector spreads remain historically tight, reflecting strong underlying credit fundamentals.

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

Hight Yield

High yield returns were modest in February, with BB‑rated bonds outperforming lower‑quality segments. Performance dispersion increased, as B‑ and CCC‑rated bonds lagged amid broader spread widening. High yield spreads widened, driven primarily by lower‑quality issuers.

HIGH YIELD SECTOR RETURNS (%) 1

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

High yield sector spreads were mixed, with energy tightening while technology and financials widened meaningfully. Sector‑level dispersion reflects increased differentiation by credit quality and industry fundamentals.

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

High yield default rates edged slightly higher in February but remain relatively low by historical standards.

HIGH YIELD DEFAULT RATES 2

Municipals & Other

Municipal bonds delivered strong returns in February, led by intermediate and long‑duration segments. Performance benefited from declining Treasury yields and continued favorable supply‑demand dynamics.

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

Returns across other fixed income sectors were mixed in February. Emerging market debt and global Treasuries posted gains, while leveraged loans and preferred securities declined amid spread pressure and risk‑off sentiment.

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.