Highlights from the fixed income markets:

  • Broad-based strength continued in fixed income for a third consecutive quarter, supported by falling Treasury yields and tighter corporate bond spreads.
  • The Bloomberg U.S. Aggregate Index (the Agg) returned 2.03% for the quarter, with every sub-sector delivering positive absolute and excess returns. Year-to-date, the Agg is up over 6%, continuing the best year for fixed income returns since 2020.
  • Corporate bond spreads tightened in every investment grade sector and now sit near all-time tights. The most significant tightening came from the communications sector. BBBs were the strongest performer by ratings category.
  • High yield spread movements were mixed but leaned toward tightening overall. While sectors like capital goods saw modest widening, many others, including communications, experienced meaningful compression. Performance was strongest in the lowest-rated category, CCCs.
  • Municipal bonds rebounded, posting positive returns after two consecutive quarters of losses. Year-to-date performance has turned positive.
Market Summary

All major fixed income sectors posted gains in the quarter, extending the market’s strong year-to-date momentum. Municipal bonds led performance for the quarter, rebounding after two consecutive down periods.

YIELDS & RETURNS (%) 1

 Duration
(years)		YieldQ3
Return		YTD
Return

Treasuries

5.93

3.94

1.51

5.36

Investment Grade Corporates

7.00

4.81

2.60

6.88

High Yield Corporates

3.15

6.70

2.54

7.22

Municipal Bonds

6.34

3.66

3.00

2.64

U.S. Treasury Market

Treasury yields fell across the curve during the quarter, most notably on the short end. Treasury yields remain below the beginning-of-the-year levels, with the largest declines occurring in the 2-to-10-year part of the yield curve.

TREASURY YIELDS (%) 1

 Q3 ChangeYear-to-Date Change9/30/20258/31/20257/31/20256/30/2025

90-Day T-Bills

-0.35

-0.39

3.94

4.14

4.34

4.29

2-year Treasury

-0.11

-0.64

3.61

3.61

3.94

3.72

5-year Treasury

-0.05

-0.65

3.74

3.69

3.96

3.79

10-year Treasury

-0.08

-0.43

4.15

4.22

4.36

4.23

30-year Treasury

-0.05

-0.06

4.73

4.92

4.89

4.78

Treasury returns were robust, with performance positively correlated to duration—longer-dated Treasuries delivered the strongest gains.

TREASURY RETURNS (%) 1

 Duration
(years)		Q3
Return		YTD
Return

90-Day T-Bills

0.25

1.08

3.21

2-year Treasury

1.95

1.03

3.79

5-year Treasury

4.61

1.18

6.01

10-year Treasury

8.13

1.84

7.01

30-year Treasury

16.18

2.10

4.26

U.S. Treasury TIPS

6.62

2.10

6.87

Broad Investment Grade

The Bloomberg Aggregate Index delivered its third straight quarter of positive absolute returns, outperforming duration-matched Treasuries. All sub-sectors within the index followed suit, posting both positive total and excess returns. Long-duration corporate bonds led the way, topping performance across both measures.

    INVESTMENT GRADE INDEX & SECTOR RETURNS (%) 1

     Duration (years)YieldQ3 ReturnDuration  adj. vs.  TreasuriesYTD ReturnDuration  adj. vs.  Treasuries

     U.S. Aggregate

    6.05

    4.37

    2.03

    0.48

    6.13

    0.60

     Treasuries

    5.93

    3.94

    1.51

    		 

    5.36

    		 

     Agencies

    3.82

    4.10

    1.39

    0.09

    4.88

    0.22

     Mortgage-Backed

     Securities

    5.62

    4.74

    2.43

    0.83

    6.76

    0.97

     Asset-Backed Securities

    2.77

    4.18

    1.64

    0.39

    4.62

    0.38

     Intermediate Corporates

    4.17

    4.47

    2.04

    0.72

    6.58

    1.16

     Long Corporates

    12.90

    5.53

    3.79

    1.55

    7.56

    1.46

    Spreads on investment grade corporate bonds tightened across all tenors, most notably on the long end.

    INVESTMENT GRADE SPREADS (basis points) 1

     Q3 ChangeYear-to-Date Change9/30/20258/31/20257/31/20256/30/2025

    1-3 Year Corporates

    -6

    -6

    46

    50

    47

    52

    Intermediate Corporates

    -9

    -5

    66

    72

    68

    75

    Long Corporates

    -10

    -8

    90

    94

    94

    100

    MBS Current Coupon Spread

    -20

    -19

    105

    110

    126

    125

    All IG ratings categories performed well in both absolute and excess terms, led by BBBs.

      INVESTMENT GRADE CORPORATE CREDIT QUALITY RETURNS (%) 1

       Duration (years)YieldQ3
      Return      		Duration  adj. vs. TreasuriesYTD
      Return      		Duration  adj. vs. Treasuries

      AAA

      10.51

      4.65

      2.64

      0.65

      6.29

      0.51

      AA

      7.88

      4.55

      2.37

      0.68

      6.24

      0.78

      A

      6.98

      4.68

      2.52

      0.90

      6.85

      1.23

      BBB

      6.80

      4.99

      2.71

      1.11

      7.03

      1.33

      Spreads narrowed across all investment-grade corporate sectors during the quarter, with the most pronounced tightening in consumer cyclicals and the least in technology.

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

       Q3
      Change      		YTD
      Change      		9/30/20258/31/20257/31/20256/30/2025

      Consumer Non-Cyclical

      -7

      -7

      67

      72

      69

      74

      Technology

      -5

      -2

      62

      66

      63

      67

      Energy

      -12

      -3

      89

      96

      93

      101

      Consumer Cyclical

      -13

      -1

      71

      77

      75

      84

      Transportation

      -11

      -4

      71

      76

      76

      82

      Basic Industry

      -9

      -8

      84

      88

      86

      93

      Communications

      -6

      -11

      86

      90

      86

      92

      Capital Goods

      -9

      -10

      62

      67

      64

      71

      Utilities

      -12

      -1

      81

      86

      84

      93

      Financials

      -11

      -8

      74

      80

      77

      85

      High Yield

      High yield corporates delivered strong quarterly returns, with spreads tightening across all rating tiers and positive performance in both absolute and excess terms. CCC-rated bonds led across all metrics.

      HIGH YIELD SECTOR RETURNS (%) 1

       Duration (years)YieldQ3
      Return      		Duration adj. vs. TreasuriesYTD
      Return      		Duration adj. vs. Treasuries

      High Yield Corporates

      3.15

      6.70

      2.54

      1.29

      7.22

      2.40

      BB

      3.41

      5.71

      2.31

      1.03

      7.40

      2.45

      B

      2.89

      6.69

      2.28

      1.06

      6.76

      2.08

      CCC

      2.75

      9.99

      4.37

      3.17

      8.07

      3.37

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

       Q3
      Change      		YTD
      Change      		9/30/20258/31/20257/31/20256/30/2025

      High Yield OAS

      -23

      -20

      267

      272

      278

      290

      BB OAS

      -3

      -11

      168

      170

      169

      171

      B OAS

      -18

      -14

      263

      266

      265

      281

      CCC OAS

      -73

      46

      604

      617

      647

      677

      High yield sector spreads were mixed during the quarter, though the overall trend was toward tightening. Modest widening occurred in the technology, capital goods, and financial sectors, while all other segments saw spread compression. Communications led the tightening move.

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

       Q3
      Change      		YTD
      Change      		9/30/20258/31/20257/31/20256/30/2025

      Consumer Non-Cyclical

      -11

      -48

      259

      266

      269

      270

      Technology

      3

      9

      273

      269

      276

      270

      Energy

      -43

      18

      268

      291

      300

      311

      Consumer Cyclical

      -6

      3

      253

      250

      253

      259

      Transportation

      -23

      61

      353

      376

      374

      376

      Basic Industry

      -3

      21

      276

      278

      270

      279

      Communications

      -94

      -119

      343

      360

      385

      437

      Capital Goods

      5

      7

      249

      241

      237

      244

      Utilities

      -2

      -34

      159

      163

      170

      161

      Financials

      2

      -17

      224

      224

      218

      222

      The number of HY issuers to have defaulted in the past 12 months dropped by 2 in the quarter. The default rate remains low by historical standards.

        HIGH YIELD DEFAULT RATES 2

         Q3
        Change        		YTD
        Change        		9/30/20258/31/20257/31/20256/30/2025

        Number of Issuers in Default

        -2

        -2

        18

        20

        20

        20

        Issuer Default Rate

        -0.2%

        -0.3%

        2.4%

        2.6%

        2.6%

        2.6%

        Municipals & Other

        Municipal bonds enjoyed a strong quarter of returns, primarily in the long duration category. Yields fell across all rating categories and all tenors.

        MAJOR MUNICIPAL BOND INDEX RETURNS (%) 1

         YTWDuration
        (years)        		Q3
        Return        		YTD
        Return

        Short Duration (1-5 Years)

        2.69

        2.71

        1.69

        3.84

        Intermediate (1-15 Years)

        3.20

        4.79

        2.59

        3.71

        Long Duration (22+ Years)

        4.63

        9.75

        3.82

        0.31

        MUNICIPAL YIELDS BY RATING CATEGORY AND MATURITY (%) 1

         AAAAAABBB
         

        9/30

        6/30

        9/30

        6/30

        9/30

        6/30

        9/30

        6/30

        1 Year

        2.28

        2.57

        2.51

        2.67

        2.74

        2.85

        3.54

        3.69

        5 Year

        2.29

        2.70

        2.48

        2.86

        2.81

        3.06

        3.61

        3.87

        10 Year

        2.90

        3.19

        3.13

        3.52

        3.54

        3.73

        4.31

        4.56

        30 Year

        4.24

        4.47

        4.54

        4.91

        4.87

        5.14

        5.66

        5.89

        AA MUNICIPALS – HYPOTHETICAL AFTER-TAX YIELDS BY EFFECTIVE TAX RATE (%) 3

         35%30%25%20%

        1 Year

        3.86

        3.58

        3.34

        3.13

        5 Year

        3.82

        3.55

        3.31

        3.11

        10 Year

        4.81

        4.46

        4.17

        3.91

        30 Year

        6.98

        6.48

        6.05

        5.67

        Other fixed-income adjacent categories were mixed in the quarter; returns were strongest on convertible bonds, while global Treasuries produced a modestly negative return.

        OTHER SECTOR RETURNS (%) 1,4

         Duration (years)YieldQ3
        Return        		Duration  adj. vs. TreasuriesYTD
        Return        		Duration  adj. vs. Treasuries

        Emerging Markets

        5.09

        7.78

        3.03

        1.60

        8.52

        3.12

        Global Investment Grade Treasuries (Unhedged)

        7.06

        3.11

        -0.23

        0.01

        7.29

        0.28

        S&P/LSTA Leveraged Loan Index

         

        7.44

        2.03

         

        5.31

         

        S&P Preferred Stock Index

         

        6.67

        2.29

         

        -0.23

         

        U.S. Convertibles

        1.36

        1.03

        10.35

         

        17.75

         

        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 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. 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.