January Recap: Strong Start to 2025 for Fixed Income Markets
January highlights from the fixed income markets:
- Fixed income returns were broadly positive in January. Treasury yields fell slightly across all but the long end of the curve.
- The Bloomberg U.S. Aggregate Index (the Agg) returned 0.53% for the month, with every sub-sector posting positive absolute returns, and every sub-sector other than asset-backed securities also outperforming similarduration Treasuries.
- Corporate spreads tightened moderately across nearly every sector in the investment grade (IG) space. In high yield (HY), every sector but one tightened by double digits. The utilities sector was the only category in both IG and HY to widen for the month.
- At its January meeting, the Federal Reserve (Fed) left short-term rates unchanged. The market continues to digest the rapid-fire news coming from Washington and assess the impacts on markets, foreign exchange rates, inflation, spending deficits, etc.
Read on for more details and analysis.
Market Summary
2025 started out strong across the major fixed income buckets, led by high yield corporates.
YIELDS & RETURNS (%) 1
| Duration (years) | Yield | 1/31/25 Return | YTD Return | |
|---|---|---|---|---|
| Treasuries | 5.88 | 4.42 | 0.52 | 0.52 |
| Investment Grade Corporates | 6.97 | 5.3 | 0.55 | 0.55 |
| High Yield Corporates | 3.34 | 7.2 | 1.37 | 1.37 |
| Municipal Bonds | 6.22 | 3.68 | 0.5 | 0.50 |
U.S. Treasury Market
Treasury yields declined slightly in January across all but the longest end of the Treasury curve. 30-year Treasury yields rose by just 2 basis points.
TREASURY YIELDS (%) 1
| Monthly Change | Year-to-Date Change | 2025-01-31 | 2024-12-31 | 2024-11-29 | 2024-10-31 | |
|---|---|---|---|---|---|---|
| 90-Day T-Bills | -0.04 | -0.04 | 4.29 | 4.33 | 4.48 | 4.55 |
| 2-year Treasury | -0.05 | -0.05 | 4.20 | 4.25 | 4.17 | 4.16 |
| 5-year Treasury | -0.06 | -0.06 | 4.33 | 4.39 | 4.07 | 4.15 |
| 10-year Treasury | -0.03 | -0.03 | 4.54 | 4.58 | 4.19 | 4.28 |
| 30-year Treasury | 0.02 | 0.02 | 4.80 | 4.78 | 4.37 | 4.48 |
Treasury returns were positive across all maturities, led by the 5- to 10-year part of the curve.
TREASURY YIELDS (%) 1
| Duration (years) | 1/31/25 Return | YTD | |
|---|---|---|---|
| 90-Day T-Bills | 0.23 | 0.38 | 0.38 |
| 2-year Treasury | 1.94 | 0.43 | 0.43 |
| 5-year Treasury | 4.55 | 0.63 | 0.63 |
| 10-year Treasury | 8.01 | 0.64 | 0.64 |
| 30-year Treasury | 16.20 | 0.16 | 0.16 |
| U.S. Treasury TIPS | 6.76 | 1.29 | 1.29 |
Broad Investment Grade
The Agg produced a positive return for the first month of the year, with every sub-segment posting positive absolute returns. Relative to similarduration Treasuries, only assetbacked securities underperformed.
INVESTMENT GRADE INDEX & SECTOR RETURNS (%) 1
| Duration (years) | Yield | 1/31/25 | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| U.S. Aggregate | 6.12 | 4.86 | 0.53 | 0.05 | 0.53 | 0.05 |
| Treasuries | 5.88 | 4.42 | 0.52 | 0.00 | 0.52 | 0.00 |
| Agencies | 3.64 | 4.57 | 0.55 | 0.13 | 0.55 | 0.13 |
| Mortgage-Backed Securities | 6.02 | 5.19 | 0.51 | 0.04 | 0.51 | 0.04 |
| Asset-Backed Securities | 2.66 | 4.73 | 0.32 | -0.06 | 0.32 | -0.06 |
| Intermediate Corporates | 4.14 | 5.06 | 0.62 | 0.15 | 0.62 | 0.15 |
| Long Corporates | 12.80 | 5.80 | 0.41 | 0.09 | 0.41 | 0.09 |
Spreads on short and intermediate investment grade (IG) corporate bonds tightened moderately; long corporate spreads were flat for the month.
INVESTMENT GRADE SPREADS (basis points) 2
| Monthly Change | Year-to-Date Change | 2025-01-31 | 2024-12-31 | 2024-11-29 | 2024-10-31 | |
|---|---|---|---|---|---|---|
| 1-3 Yr Corporates | -3 | -3 | 49 | 52 | 45 | 52 |
| Intermediate Corporates | -2 | -2 | 69 | 71 | 67 | 74 |
| Long Corporates | 0 | 0 | 98 | 98 | 98 | 104 |
| MBS Current Coupon Spread | 3 | 3 | 127 | 125 | 130 | 148 |
Absolute returns on IG corporates were positive for all ratings categories, with a bias toward lower-rated categories.
INVESTMENT GRADE CORPORATE CREDIT QUALITY RETURNS (%) 2
| Duration (years) | Yield | 1/31/25 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| AAA | 10.38 | 4.97 | 0.23 | -0.08 | 0.23 | -0.08 |
| AA | 7.80 | 4.97 | 0.48 | 0.10 | 0.48 | 0.10 |
| A | 6.93 | 5.18 | 0.54 | 0.12 | 0.54 | 0.12 |
| BBB | 6.81 | 5.48 | 0.58 | 0.14 | 0.58 | 0.14 |
Spreads tightened on 8 of the 10 IG corporate sectors. Energy sector spreads were flat, while utilities was the only sector to realize wider spreads.
INVESTMENT GRADE CORPORATE BOND SPREADS BY SECTOR (basis points) 2
| Monthly Change | Year-to-date Change | 2025-01-31 | 2024-12-31 | 2024-11-29 | 2024-10-31 | |
|---|---|---|---|---|---|---|
| Consumer Non-Cyclical | -3 | -3 | 71 | 74 | 71 | 75 |
| Technology | -1 | -1 | 64 | 65 | 63 | 68 |
| Energy | 0 | 0 | 92 | 92 | 89 | 100 |
| Consumer Cyclical | -1 | -1 | 70 | 72 | 70 | 78 |
| Transportation | -1 | -1 | 74 | 75 | 75 | 78 |
| Basic Industry | -2 | -2 | 90 | 92 | 90 | 92 |
| Communications | -1 | -1 | 96 | 97 | 96 | 104 |
| Capital Goods | -3 | -3 | 69 | 71 | 71 | 76 |
| Utilities | 6 | 6 | 88 | 82 | 81 | 87 |
| Financials | -3 | -3 | 79 | 82 | 79 | 85 |
High Yield
High yield (HY) corporates began the year with strong returns and tighter spreads across all ratings categories.
HIGH YIELD SECTOR RETURNS (%) 2
| Duration (years) | Yield | 1/31/25 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| High Yield Corporates | 3.34 | 7.20 | 1.37 | 0.93 | 1.37 | 0.93 |
| BB | 3.56 | 6.14 | 1.28 | 0.84 | 1.28 | 0.84 |
| B | 3.13 | 7.13 | 1.42 | 0.99 | 1.42 | 0.99 |
| CCC | 3.14 | 9.73 | 1.54 | 1.11 | 1.54 | 1.11 |
HIGH YIELD OPTION-ADJUSTED SPREADS (OAS) (basis points) 2
| Duration (years) | Yield | 1/31/25 | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| High Yield OAS | -26 | -26 | 261 | 287 | 266 | 282 |
| BB OAS | -23 | -23 | 156 | 179 | 158 | 174 |
| B OAS | -27 | -27 | 250 | 277 | 254 | 271 |
| CCC OAS | -40 | -40 | 518 | 558 | 527 | 566 |
Every HY sector experienced double-digit spread tightening apart from utilities, which widened slightly.
HIGH YIELD CORPORATE BOND SPREADS (OAS) BY SECTOR (basis points) 2
| Monthly Change | Year-to-date Change | 2025-01-31 | 2024-12-31 | 2024-11-29 | 2024-10-31 | |
|---|---|---|---|---|---|---|
| Consumer Non-Cyclical | -17 | -17 | 291 | 307 | 274 | 289 |
| Technology | -11 | -11 | 253 | 264 | 264 | 265 |
| Energy | -30 | -30 | 220 | 250 | 223 | 254 |
| Consumer Cyclical | -29 | -29 | 220 | 250 | 226 | 237 |
| Transportation | -24 | -24 | 268 | 292 | 277 | 314 |
| Basic Industry | -24 | -24 | 232 | 255 | 234 | 256 |
| Communications | -32 | -32 | 430 | 462 | 445 | 476 |
| Capital Goods | -33 | -33 | 210 | 243 | 216 | 227 |
| Utilities | 3 | 3 | 196 | 193 | 171 | 167 |
| Financials | -29 | -29 | 212 | 241 | 224 | 246 |
The high yield default rate increased slightly to its highest level since May 2024.
| Monthly Change | Year-to-date Change | 2025-01-31 | 2024-12-31 | 2024-11-29 | 2024-10-31 | |
|---|---|---|---|---|---|---|
| Number of Issuers in Default | 1 | 1 | 25 | 24 | 19 | 19 |
| Issuer Default Rate | 0.1% | 0.1% | 3.2% | 3.1% | 2.5% | 2.5% |
Municipals & Other
Muni returns were positive in January. The municipal yield curve steepened, as yields fell across nearly every 1- and 5-year category while rising across most 10- and 30-year buckets.
MAJOR MUNICIPAL BOND INDEX RETURNS (%) 1
| YTW | Duration (years) | 1/31/25 | YTD | |
|---|---|---|---|---|
| Short Duration (1-5 Years) | 3.08 | 2.69 | 0.57 | 0.57 |
| Intermediate (1-15 Years) | 3.37 | 4.61 | 0.68 | 0.68 |
| Long Duration (22+ Years) | 4.35 | 9.87 | 0.08 | 0.08 |
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 | 2.63 | 2.95 | 2.71 | 3.06 | 2.85 | 3.27 | 3.66 | 3.82 |
| 5 Year | 2.80 | 2.88 | 2.89 | 3.02 | 3.07 | 3.22 | 3.84 | 3.82 |
| 10 Year | 3.04 | 3.11 | 3.18 | 3.30 | 3.34 | 3.48 | 4.18 | 4.12 |
| 30 Year | 3.90 | 3.82 | 4.28 | 4.15 | 4.45 | 4.32 | 5.20 | 4.90 |
AA MUNICIPALS – HYPOTHETICAL AFTER-TAX YIELDS BY EFFECTIVE TAX RATE (%)
| 35% | 30% | 25% | 20% | |
| 1 Year | 4.17 | 3.87 | 3.61 | 3.39 |
| 5 Year | 4.44 | 4.12 | 3.85 | 3.61 |
| 10 Year | 4.89 | 4.54 | 4.24 | 3.98 |
| 30 Year | 6.58 | 6.11 | 5.71 | 5.35 |
“Other” sectors were led by emerging market debt and convertibles. All categories produced positive absolute returns.
OTHER SECTOR RETURNS (%) 1,2
| Duration (years) | Yield | 1/31/25 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| Emerging Markets | 5.20 | 8.21 | 1.62 | 1.17 | 1.62 | 1.17 |
| Global Treasuries (Unhedged) | 7.21 | 3.19 | 0.58 | 0.08 | 0.58 | 0.08 |
| S&P/LSTA Leveraged Loan 100 | 7.79 | 0.70 | 0.70 | |||
| Wells Fargo Hybrid & Pref. Securities Aggregate Index | 6.18 | 0.62 | 0.62 | |||
| U.S. Convertibles | 1.47 | 0.90 | 2.80 | 2.80 |
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.
