February Recap: Treasury Returns Lead Fixed Income Markets Higher
February highlights from the fixed income markets:
- Fixed income returns were strong for a second consecutive month. Treasury yields fell across all but the shortest end of the yield curve.
- Yield and spread movements throughout the month reflected a generally cautious sentiment in fixed income markets. News flow out of Washington, D.C. has kept investors on their toes, with frequent announcements about broad spending cuts and potential widespread tariffs.
- The Bloomberg U.S. Aggregate Index (the Agg) returned 2.20% for the month, with every sub-sector posting positive absolute returns. Mortgage-backed securities was the only category to outperform similar-duration Treasuries.
- Corporate spreads widened in every sector across both the investment grade and high yield corporate spaces. Spreads are wider year-to-date in every IG sector, while spreads are tighter year-to-date in 7 of the 10 HY sectors.
Read on for more details and analysis.
Market Summary
For the second month in a row, every major fixed income category posted positive returns. Treasuries are the top-performing category thus far in 2025.
YIELDS & RETURNS (%) 1
| Duration (years) | Yield | 2/28/25 Return | YTD Return | |
|---|---|---|---|---|
| Treasuries | 6.04 | 4.14 | 2.16 | 2.68 |
| Investment Grade Corporates | 7.07 | 5.08 | 2.04 | 2.60 |
| High Yield Corporates | 3.33 | 7.15 | 0.67 | 2.05 |
| Municipal Bonds | 6.07 | 3.55 | 0.99 | 1.50 |
U.S. Treasury Market
The Treasury yield curve flattened in February. T-Bill yields were essentially unchanged, while yields fell significantly across the rest of the curve.
TREASURY YIELDS (%) 1
| Monthly Change | Year-to-Date Change | 2025-02-28 | 2024-01-31 | 2024-12-31 | 2024-11-29 | |
|---|---|---|---|---|---|---|
90-Day T-Bills | 0.01 | -0.03 | 4.30 | 4.29 | 4.33 | 4.48 |
| 2-year Treasury | -0.22 | -0.26 | 3.99 | 4.20 | 4.25 | 4.17 |
| 5-year Treasury | -0.32 | -0.38 | 4.01 | 4.33 | 4.39 | 4.07 |
| 10-year Treasury | -0.35 | -0.38 | 4.20 | 4.54 | 4.58 | 4.19 |
| 30-year Treasury | -0.33 | -0.31 | 4.47 | 4.80 | 4.78 | 4.37 |
Returns on Treasuries have been strong year-to-date. Long Treasuries had a particularly strong month in February, returning over 5.5%.
TREASURY YIELDS (%) 1
| Duration (years) | 2/28/25 Return | YTD | |
|---|---|---|---|
| 90-Day T-Bills | 0.23 | 0.32 | 0.70 |
| 2-year Treasury | 1.94 | 0.69 | 1.12 |
| 5-year Treasury | 4.58 | 1.74 | 2.38 |
| 10-year Treasury | 8.12 | 3.07 | 3.74 |
| 30-year Treasury | 16.64 | 5.59 | 5.76 |
| U.S. Treasury TIPS | 6.87 | 2.18 | 3.50 |
Broad Investment Grade
The Bloomberg U.S. Aggregate Index (the Agg) showed strong results in February, with every sub-category posting positive returns for a second consecutive month. Excess returns were negative for every category other than mortgage-backed securities (MBS).
INVESTMENT GRADE INDEX & SECTOR RETURNS (%) 1
| Duration (years) | Yield | 2/28/25 | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| U.S. Aggregate | 6.16 | 4.58 | 2.20 | -0.10 | 2.74 | -0.05 |
| Treasuries | 6.04 | 4.14 | 2.16 | 0.00 | 2.68 | 0.00 |
| Agencies | 3.69 | 4.35 | 1.27 | -0.01 | 1.82 | 0.12 |
| Mortgage-Backed Securities | 5.77 | 4.85 | 2.55 | 0.16 | 3.07 | 0.20 |
| Asset-Backed Securities | 2.67 | 4.55 | 0.97 | -0.04 | 1.30 | -0.10 |
| Intermediate Corporates | 4.16 | 4.84 | 1.37 | -0.23 | 2.00 | -0.08 |
| Long Corporates | 12.93 | 5.57 | 3.42 | -1.21 | 3.84 | -1.12 |
Spreads widened across all maturity categories of investment grade (IG) corporate bonds. Current-coupon MBS spreads tightened.
INVESTMENT GRADE SPREADS (basis points) 2
| Monthly Change | Year-to-Date Change | 2025-02-28 | 2024-01-31 | 2024-1-31 | 2024-11-29 | |
|---|---|---|---|---|---|---|
| 1-3 Yr Corporates | 3 | 0 | 52 | 49 | 52 | 45 |
| Intermediate Corporates | 7 | 5 | 76 | 69 | 71 | 67 |
| Long Corporates | 10 | 10 | 108 | 98 | 98 | 98 |
| MBS Current Coupon Spread | -4 | -2 | 123 | 127 | 125 | 130 |
Every IG ratings category returned 2% or greater in February while underperforming similar-duration Treasuries.
INVESTMENT GRADE CORPORATE CREDIT QUALITY RETURNS (%) 2
| Duration (years) | Yield | 2/28/25 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| AAA | 10.23 | 4.71 | 2.99 | -0.78 | 3.23 | -0.87 |
| AA | 7.96 | 4.76 | 2.23 | -0.63 | 2.72 | -0.53 |
| A | 7.02 | 4.96 | 2.02 | -0.55 | 2.58 | -0.42 |
| BBB | 6.91 | 5.27 | 2.00 | -0.53 | 2.59 | -0.39 |
Spreads widened across every IG sector. The largest widening moves occurred in the Consumer Cyclical and Transportation sectors.
INVESTMENT GRADE CORPORATE BOND SPREADS BY SECTOR (basis points) 2
| Monthly Change | Year-to-date Change | 2025-02-28 | 2024-01-31 | 2024-12-31 | 2024-11-29 | |
|---|---|---|---|---|---|---|
| Consumer Non-Cyclical | 7 | 4 | 78 | 71 | 74 | 71 |
| Technology | 8 | 7 | 72 | 64 | 65 | 63 |
| Energy | 8 | 9 | 101 | 92 | 92 | 89 |
| Consumer Cyclical | 12 | 10 | 82 | 70 | 72 | 70 |
| Transportation | 10 | 9 | 84 | 74 | 75 | 75 |
| Basic Industry | 7 | 4 | 96 | 90 | 92 | 90 |
| Communications | 9 | 7 | 104 | 96 | 97 | 96 |
| Capital Goods | 9 | 6 | 78 | 69 | 71 | 71 |
| Utilities | 9 | 15 | 97 | 88 | 82 | 81 |
| Financials | 7 | 4 | 87 | 79 | 82 | 79 |
High Yield
High yield (HY) returns were positive across all rating categories despite spreads moving wider for the month.
HIGH YIELD SECTOR RETURNS (%) 2
| Duration (years) | Yield | 2/28/25 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| High Yield Corporates | 3.33 | 7.15 | 0.67 | -0.52 | 2.05 | 0.41 |
| BB | 3.55 | 6.10 | 0.72 | -0.56 | 2.01 | 0.28 |
| B | 3.14 | 7.10 | 0.60 | -0.50 | 2.03 | 0.49 |
| CCC | 3.04 | 9.77 | 0.30 | -0.84 | 1.85 | 0.26 |
HIGH YIELD OPTION-ADJUSTED SPREADS (OAS) (basis points) 2
| Monthly Change | Year-to-Date Change | 2025-02-28 | 2025-01-31 | 2024-12-31 | 2024-11-29 | |
|---|---|---|---|---|---|---|
| High Yield OAS | 19 | -7 | 280 | 261 | 287 | 266 |
| BB OAS | 22 | -1 | 178 | 156 | 179 | 158 |
| B OAS | 20 | -7 | 270 | 250 | 277 | 254 |
| CCC OAS | 29 | -11 | 547 | 518 | 558 | 527 |
Similar to the IG space, spreads widened across every HY sector in February. The Transportation and Energy sectors widened the most. Spreads remain tighter year-to-date in 7 of the 10 sectors.
HIGH YIELD CORPORATE BOND SPREADS (OAS) BY SECTOR (basis points) 2
| Monthly Change | Year-to-date Change | 2025-02-28 | 2025-01-31 | 2024-12-31 | 2024-11-29 | |
|---|---|---|---|---|---|---|
| Consumer Non-Cyclical | 7 | -9 | 298 | 291 | 307 | 274 |
| Technology | 17 | 6 | 270 | 253 | 264 | 264 |
| Energy | 29 | -2 | 248 | 220 | 250 | 223 |
| Consumer Cyclical | 14 | -16 | 234 | 220 | 250 | 226 |
| Transportation | 42 | 18 | 310 | 268 | 292 | 277 |
| Basic Industry | 18 | -6 | 250 | 232 | 255 | 234 |
| Communications | 26 | -5 | 457 | 430 | 462 | 445 |
| Capital Goods | 18 | -15 | 228 | 210 | 243 | 216 |
| Utilities | 22 | 24 | 218 | 196 | 193 | 171 |
| Financials | 20 | -9 | 232 | 212 | 241 | 224 |
The number of issuers to have defaulted in the previous 12 months declined by 3 in February, sending the default rate below 3%.
HIGH YIELD DEFAULT RATES
| Monthly Change | Year-to-date Change | 2025-02-28 | 2024-01-31 | 2024-12-31 | 2024-11-29 | |
|---|---|---|---|---|---|---|
| Number of Issuers in Default | -3 | -2 | 22 | 25 | 24 | 19 |
| Issuer Default Rate | -0.4% | -0.3% | 2.8% | 3.2% | 3.1% | 2.5% |
Municipals & Other
Municipal bonds generated positive returns across all duration categories.
MAJOR MUNICIPAL BOND INDEX RETURNS (%) 1
| YTW | Duration (years) | 2/28/25 | YTD | |
|---|---|---|---|---|
| Short Duration (1-5 Years) | 2.94 | 2.67 | 0.67 | 1.24 |
| Intermediate (1-15 Years) | 3.21 | 4.52 | 0.98 | 1.67 |
| Long Duration (22+ Years) | 4.28 | 9.68 | 0.98 | 1.06 |
MUNICIPAL YIELDS BY RATING CATEGORY AND MATURITY (%) 2
| AAA | AAA M-1 | AA | AA M-1 | A | A M-1 | BBB | BBB M-1 | |
|---|---|---|---|---|---|---|---|---|
| 1 Year | 2.49 | 2.63 | 2.60 | 2.71 | 2.73 | 2.85 | 3.57 | 3.66 |
| 5 Year | 2.62 | 2.80 | 2.74 | 2.89 | 2.89 | 3.07 | 3.72 | 3.84 |
| 10 Year | 2.86 | 3.04 | 3.01 | 3.18 | 3.20 | 3.34 | 4.10 | 4.18 |
| 30 Year | 3.86 | 3.90 | 4.26 | 4.28 | 4.37 | 4.45 | 5.22 | 5.20 |
AA MUNICIPALS – HYPOTHETICAL AFTER-TAX YIELDS BY EFFECTIVE TAX RATE (%)
| 35% | 30% | 25% | 20% | |
|---|---|---|---|---|
| 1 Year | 4.00 | 3.71 | 3.46 | 3.25 |
| 5 Year | 4.21 | 3.91 | 3.65 | 3.42 |
| 10 Year | 4.64 | 4.31 | 4.02 | 3.77 |
| 30 Year | 6.55 | 6.08 | 5.68 | 5.32 |
Convertible bonds were one of the few fixed income sectors to post negative returns in February. Global Treasury bonds were strong for the month.
OTHER SECTOR RETURNS (%) 1,2
| Duration (years) | Yield | 2/28/25 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| Emerging Markets | 5.22 | 8.19 | 0.75 | -1.19 | 2.39 | -0.01 |
| Global Treasuries (Unhedged) | 7.26 | 3.10 | 1.38 | 0.01 | 1.97 | 0.09 |
| S&P/LSTA Leveraged Loan 100 | 7.83 | 0.14 | 0.84 | |||
| Wells Fargo Hybrid & Pref. Securities Aggregate Index | 6.18 | 0.22 | 0.84 | |||
| U.S. Convertibles | 1.60 | 0.84 | -1.37 | 1.39 |
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.
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.
SBH is a wholly owned subsidiary of Corient Holdings Inc.
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.
