Monthly Market Snapshot

In this month’s market snapshot, we highlight the continued momentum in high yield (HY) bond issuance. The chart below shows a clear upward trend in monthly HY supply since early 2022, reflecting both cyclical and structural forces across credit markets.

On The Rise: Monthly High Yield Bond Issuance

After the post‑COVID refinancing wave left many issuers well funded, supply stayed muted through 2022. Activity accelerated sharply in 2025 as issuers confronted the large maturity wall created by the 2020-2021 issuance boom, with a backlog of deals coming to market once conditions normalized after the early‑year tariff‑driven disruption. Beyond those drivers, the broader, recent upward trend reflects the corporate funding needs of higher capex, M&A activity, and general balance‑sheet repositioning.​

 

 

May Recap: Credit Leads as Spreads Grind Tighter​

 

  • The Bloomberg U.S. Aggregate Bond Index (The Agg) posted a 0.31% gain in May, supported by positive excess returns across nearly all sub-sectors.​
  • Treasury yields moved higher across most maturities in May, but major fixed income sectors still delivered positive total returns.​
  • Investment grade corporates outperformed Treasuries as spreads tightened broadly, with lower‑quality BBBs posting the highest excess returns.​
  • High yield returns were positive across all ratings categories. Spreads tightened on BBs and Bs, while CCC spreads widened. The high yield default rate improved modestly in the month.​
  • Municipal bonds posted steady gains across the curve as yields were largely stable month‑over‑month.​
  • Markets are now assigning a higher probability to a potential Fed hike, as persistent inflation and resilient economic data challenge expectations for easing and keep yields biased higher.​

Market Summary

The major fixed income sectors delivered positive total returns in May. Investment grade corporates outperformed other major sectors on broadly tighter spreads.

YIELDS & RETURNS (%) 1

U.S. Treasury Market

Treasury yields rose modestly across most of the curve, led by 2‑ and 5‑year maturities. The 10‑year ended the month at 4.44%, up 5 bps, while the 30‑year was essentially unchanged. Short‑term T-bill yields held steady.

TREASURY YIELDS (%) 1

Returns were mixed across the Treasury curve, with longer maturities outperforming. Intermediate Treasuries lagged, and the 5‑year posted a small decline. T‑Bills continued to generate steady positive returns year‑to‑date.​

TREASURY RETURNS (%) 1

Investment Grade

The Agg posted a 0.31% gain in May, supported by positive excess returns across nearly all major sectors. Corporates outperformed on tighter spreads, with long corporates returning a strong 1.60%. MBS and ABS also delivered solid results as yields moved higher but spreads narrowed.​

INVESTMENT GRADE INDEX & SECTOR RETURNS (%) 1

Investment grade spreads tightened across the curve, with 1–3 year, intermediate, and long corporates narrowing by 6–8 bps. MBS current coupon spreads also tightened modestly. Despite the rally, year‑to‑date spread moves remain mixed across sectors.​

INVESTMENT GRADE SPREADS (basis points) 1

Longer‑duration AAA bonds posted the strongest absolute return at 0.97%. BBBs outperformed AAs and As, with BBBs posting the strongest excess returns.​

INVESTMENT GRADE CORPORATE CREDIT QUALITY RETURNS (%) 1

Spreads tightened across every major IG sector in May, led by technology. Consumer‑related sectors also saw meaningful tightening as risk sentiment improved. All sectors are tighter year‑to‑date.

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

High Yield

High yield delivered another month of positive performance, returning 0.49%. B‑rated bonds led with a 0.74% gain, while CCCs lagged. Spreads tightened on BBs and Bs and widened on CCCs.

HIGH YIELD SECTOR RETURNS (%) 1

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

High yield spreads tightened across most sectors. Energy spreads largely unchanged, while transportation and communication spreads widened.

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

The number of issuers in default declined slightly in May. 

HIGH YIELD DEFAULT RATES 2

Municipals & Other

Municipal bonds posted positive returns across the curve, led by long‑duration munis. Yields were mixed by rating and maturity but generally stable month‑over‑month. Year‑to‑date returns remain positive across all major muni categories.

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

U.S. convertibles surged 7.07% in May, bringing year‑to‑date returns above 22%. Emerging markets debt performed well with a 1.20% return. Preferred securities and leveraged loans also posted solid gains. 

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.

 

Data source: Pitchbook/LCD, Bof A Global Research. 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 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.

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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.