May highlights from the fixed income markets:
- Fixed income returns were mixed in May; Treasuries were negative, high yield (HY) corporates were strong, and investment grade corporates and municipals were essentially flat.
- Treasury yields moved higher across the curve, most notably in the 2-year to 10-year maturities.
- The Bloomberg U.S. Aggregate Index (the Agg) lost 0.72% for the month, driven primarily by losses on Treasuries and mortgage-backed securities (MBS). Despite the weakness in May, the Agg remains up nearly 2.5% year-to-date.
- Corporate spreads reversed the general widening trend of the past two months, tightening in every sector across both investment grade (IG) and high yield (HY). Spreads remain moderately wider year-to-date across all IG sectors. In HY, spread moves have been more volatile; all but two sectors (communications and consumer non-cyclicals) remain wider on the year.
Read on for more details and analysis.
Market Summary
High yield corporates were the top-performing broad fixed income category in May. Treasury returns lagged.
YIELDS & RETURNS (%) 1
| Duration (years) | Yield | May Return | YTD Return | |
|---|---|---|---|---|
| Treasuries | 5.87 | 4.19 | -1.03 | 2.51 |
| Investment Grade Corporates | 6.88 | 5.21 | -0.01 | 2.26 |
| High Yield Corporates | 3.32 | 7.46 | 1.68 | 2.68 |
| Municipal Bonds | 6.73 | 4.04 | 0.06 | -0.96 |
U.S. Treasury Market
Treasury yields moved higher across the full curve. 2-year Treasury yields increased the most.
TREASURY YIELDS (%) 1
| May Change | Year-to-Date Change | 2025-05-31 | 2025-04-30 | 2025-03-31 | 2025-02-28 | |
|---|---|---|---|---|---|---|
| 90-Day T-Bills | 0.05 | 0.01 | 4.34 | 4.29 | 4.30 | 4.30 |
| 2-year Treasury | 0.30 | -0.36 | 3.89 | 3.59 | 3.90 | 3.99 |
| 5-year Treasury | 0.24 | -0.44 | 3.95 | 3.71 | 3.96 | 4.01 |
| 10-year Treasury | 0.24 | -0.19 | 4.39 | 4.15 | 4.21 | 4.20 |
| 30-year Treasury | 0.22 | 0.13 | 4.91 | 4.69 | 4.58 | 4.47 |
Treasury returns were negative across all but the shortest maturities. Returns were increasingly negative further out the curve.
TREASURY RETURNS (%) 1
| Duration (years) | May Return | YTD Return | |
|---|---|---|---|
| 90-Day T-Bills | 0.23 | 0.37 | 1.77 |
| 2-year Treasury | 1.94 | -0.29 | 2.14 |
| 5-year Treasury | 4.58 | -0.78 | 3.64 |
| 10-year Treasury | 8.19 | -1.38 | 3.40 |
| 30-year Treasury | 16.06 | -3.21 | -0.32 |
| U.S. Treasury TIPS | 6.61 | -0.59 | 3.68 |
Broad Investment Grade
The Agg produced a negative absolute return while outperforming similar-duration Treasuries. Treasuries and mortgage-backed securities (MBS) were the weakest subsegments; intermediate corporates were the strongest.
INVESTMENT GRADE INDEX & SECTOR RETURNS (%) 1
| Duration (years) | Yield | May Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| U.S. Aggregate | 6.08 | 4.71 | -0.72 | 0.38 | 2.45 | -0.10 |
| Treasuries | 5.87 | 4.19 | -1.03 | 2.51 | ||
| Agencies | 3.81 | 4.37 | -0.31 | 0.18 | 2.52 | 0.12 |
| Mortgage-Backed Securities | 5.97 | 5.15 | -0.91 | 0.19 | 2.41 | -0.27 |
| Asset-Backed Securities | 2.64 | 4.62 | 0.02 | 0.38 | 2.05 | -0.14 |
| Intermediate Corporates | 4.19 | 4.88 | 0.20 | 0.91 | 3.07 | 0.13 |
| Long Corporates | 12.74 | 5.94 | -0.46 | 2.04 | 0.60 | -0.74 |
Spreads tightened across all investment grade (IG) maturity buckets.
INVESTMENT GRADE SPREADS (basis points) 1
| May Change | Year-to-Date Change | 2025-05-31 | 2024-04-30 | 2025-03-31 | 2025-02-28 | |
|---|---|---|---|---|---|---|
| 1-3 Yr Corporates | -16 | 5 | 57 | 73 | 58 | 52 |
| Intermediate Corporates | -18 | 9 | 80 | 98 | 83 | 76 |
| Long Corporates | -17 | 8 | 106 | 123 | 116 | 108 |
| MBS Current Coupon Spread | -5 | 9 | 134 | 139 | 130 | 123 |
Absolute returns on lower-rated IG corporates outperformed the higher-rated buckets. All ratings categories outperformed Treasuries.
INVESTMENT GRADE CORPORATE CREDIT QUALITY RETURNS (%) 1
| Duration (years) | Yield | May Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| AAA | 9.94 | 4.89 | -0.94 | 0.99 | 1.65 | -0.08 |
| AA | 7.83 | 4.87 | -0.48 | 0.99 | 2.00 | -0.06 |
| A | 6.85 | 5.06 | -0.20 | 1.08 | 2.33 | -0.08 |
| BBB | 6.69 | 5.42 | 0.27 | 1.51 | 2.26 | -0.28 |
IG corporate bond spreads tightened by double digits across all categories, led by the energy and consumer cyclical sectors.
INVESTMENT GRADE CORPORATE BOND SPREADS BY SECTOR (basis points) 1
| April Change | YTD Change | 2025-05-31 | 2025-04-30 | 2025-03-31 | 2025-02-28 | |
|---|---|---|---|---|---|---|
| Consumer Non-Cyclical | -15 | 3 | 76 | 91 | 84 | 78 |
| Technology | -19 | 5 | 69 | 88 | 77 | 72 |
| Energy | -22 | 17 | 109 | 131 | 109 | 101 |
| Consumer Cyclical | -20 | 17 | 89 | 109 | 93 | 82 |
| Transportation | -17 | 12 | 87 | 104 | 93 | 84 |
| Basic Industry | -19 | 8 | 100 | 119 | 104 | 96 |
| Communications | -19 | 5 | 102 | 121 | 112 | 104 |
| Capital Goods | -19 | 3 | 74 | 93 | 83 | 78 |
| Utilities | -15 | 15 | 97 | 112 | 103 | 97 |
| Financials | -18 | 8 | 90 | 108 | 95 | 87 |
High Yield
High yield (HY) corporate returns were strong in May. All HY ratings categories posted positive absolute and excess returns. The riskier HY ratings categories outperformed, while spreads tightened across all ratings buckets.
HIGH YIELD SECTOR RETURNS (%) 1
| Duration (years) | Yield | May Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| High Yield Corporates | 3.32 | 7.46 | 1.68 | 2.14 | 2.68 | 0.02 |
| BB | 3.58 | 6.24 | 1.53 | 2.04 | 3.18 | 0.46 |
| B | 3.06 | 7.35 | 1.66 | 2.07 | 2.41 | -0.19 |
| CCC | 2.99 | 11.20 | 2.43 | 2.81 | 1.21 | -1.46 |
HIGH YIELD OPTION-ADJUSTED SPREADS (OAS) (basis points) 1
| May Change | YTD Change | 2025-05-31 | 2025-04-30 | 2025-03-31 | 2025-02-28 | |
|---|---|---|---|---|---|---|
| High Yield OAS | -69 | 28 | 315 | 384 | 347 | 280 |
| BB OAS | -59 | 12 | 191 | 250 | 219 | 178 |
| B OAS | -82 | 24 | 301 | 383 | 346 | 270 |
| CCC OAS | -70 | 142 | 700 | 770 | 676 | 547 |
HY corporate bond spreads tightened by more than 40 basis points across all sectors. The most significant moves came from transportation and energy.
HIGH YIELD CORPORATE BOND SPREADS (OAS) BY SECTOR (basis points) 1
| May Change | YTD Change | 2025-05-31 | 2025-04-30 | 2025-03-31 | 2025-02-28 | |
|---|---|---|---|---|---|---|
| Consumer Non-Cyclical | -86 | -17 | 290 | 376 | 355 | 298 |
| Technology | -81 | 15 | 279 | 360 | 345 | 270 |
| Energy | -98 | 99 | 349 | 447 | 312 | 248 |
| Consumer Cyclical | -55 | 35 | 285 | 340 | 306 | 234 |
| Transportation | -107 | 134 | 426 | 533 | 460 | 310 |
| Basic Industry | -68 | 59 | 315 | 383 | 326 | 250 |
| Communications | -79 | -4 | 458 | 537 | 515 | 457 |
| Capital Goods | -47 | 19 | 262 | 309 | 304 | 228 |
| Utilities | -51 | 29 | 222 | 273 | 270 | 218 |
| Financials | -56 | 9 | 250 | 306 | 281 | 232 |
The number of issuers to have defaulted in the past 12 months rose by 6 in May, bringing the HY default rate to roughly where it started the year.
HIGH YIELD DEFAULT RATES 2
| April Change | YTD Change | 2025-05-31 | 2025-04-30 | 2025-03-31 | 2025-02-28 | |
|---|---|---|---|---|---|---|
| Number of Issuers in Default | 6 | -1 | 23 | 17 | 17 | 18 |
| Issuer Default Rate | 0.8% | -0.1% | 3.0% | 2.2% | 2.2% | 2.3% |
Municipals & Other
Short and intermediate municipal bond returns were positive, while long munis were negative.
MAJOR MUNICIPAL BOND INDEX RETURNS (%) 1
| YTW | Duration (years) | May Return | YTD Return | |
|---|---|---|---|---|
| Short Duration (1-5 Years) | 3.21 | 2.65 | 0.76 | 1.35 |
| Intermediate (1-15 Years) | 3.65 | 4.90 | 0.56 | 0.33 |
| Long Duration (22+ Years) | 4.88 | 10.92 | -0.98 | -3.67 |
MUNICIPAL YIELDS BY RATING CATEGORY AND MATURITY (%) 1
| AAA | AA | A | BBB | |||||
|---|---|---|---|---|---|---|---|---|
| 5/31 | 4/30 | 5/31 | 4/30 | 5/31 | 4/30 | 5/31 | 4/30 | |
| 1 Year | 2.75 | 2.85 | 2.86 | 3.11 | 3.26 | 3.26 | 3.96 | 4.08 |
| 5 Year | 2.86 | 3.03 | 2.97 | 3.32 | 3.34 | 3.49 | 4.16 | 4.32 |
| 10 Year | 3.29 | 3.34 | 3.51 | 3.68 | 3.82 | 3.89 | 4.65 | 4.63 |
| 30 Year | 4.49 | 4.39 | 4.88 | 4.73 | 5.10 | 4.89 | 5.86 | 5.66 |
AA MUNICIPALS – HYPOTHETICAL AFTER-TAX YIELDS BY EFFECTIVE TAX RATE (%) 3
| 35% | 30% | 25% | 20% | |
|---|---|---|---|---|
| 1 Year | 4.40 | 4.09 | 3.81 | 3.58 |
| 5 Year | 4.57 | 4.24 | 3.96 | 3.71 |
| 10 Year | 5.40 | 5.01 | 4.68 | 4.38 |
| 30 Year | 7.50 | 6.97 | 6.50 | 6.10 |
Convertibles, emerging markets, and leverage loans produced strong returns in May, while global Treasuries generated a loss.
OTHER SECTOR RETURNS (%) 1,4
| Duration (years) | Yield | 45808 Return | Duration adj. vs. Treasuries | YTD Return | Duration adj. vs. Treasuries | |
|---|---|---|---|---|---|---|
| Emerging Markets | 5.08 | 8.33 | 1.74 | 2.59 | 3.06 | 0.37 |
| Global Investment Grade Treasuries (Unhedged) | 7.13 | 3.11 | -0.61 | 0.10 | 5.68 | 0.22 |
| S&P/LSTA Leveraged Loan Index | 7.96 | 1.54 | 2.50 | |||
| S&P Preferred Stock Index | 6.76 | 0.04 | -3.70 | |||
| U.S. Convertibles | 1.51 | 0.85 | 3.11 | 2.84 |
Bond Rating Categories
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 illustrative purposes only. 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.
