Monthly Market Snapshot

For much of the decade following the Global Financial Crisis, investors earned modest, and even negative, real returns from Treasury bonds. Today, 10-year real yields are near their highest levels in more than a decade, providing investors with an opportunity to lock in positive real income from Treasuries.

Source: Bloomberg. As of 9/30/26. Real Yield refers to the 10-year Treasury yield less breakeven inflation expectations from the TIPS market.

The rise in real yields has materially improved the income potential of high-quality bonds, creating one of the more attractive fixed income backdrops since before the pandemic.

For educational purposes only. Advisory services are offered through Segall Bryant & Hamill, LLC, d/b/a CI SBH Asset Management (“SBH”), a registered investment adviser with the U.S. Securities and Exchange Commission. This update provides an overview of certain broad-based Fixed Income benchmarks and does not include performance of the CI SBH 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.

Third Quarter Recap: Rising Rates Pressure Fixed Income Markets

  • Treasury yields moved sharply higher in the quarter - mainly in September - with the largest increases occurring in intermediate maturities. The rise in rates weighed on most areas of the fixed income market.

  • The Bloomberg U.S. Aggregate Index (the Agg) returned -3.51% as higher interest rates pressured bond markets. Shorter-duration sectors such as ABS held up relatively well, while mortgages and long corporates lagged.

  • Investment grade credit spreads widened modestly across most sectors. Despite the spread pressure, corporate fundamentals generally remained stable and spread levels remain relatively tight by historical standards.

  • High yield spreads widened during the quarter, particularly among lower-quality credits, though default activity remained stable. B-rated bonds outperformed both BBs and CCCs.

  • Concerns about inflation, federal borrowing needs, and the path of monetary policy continued to influence fixed income markets during the quarter. Persistent concerns around a higher-for-longer rate environment contributed to the broad increase in Treasury yields during the quarter.

Market Summary

Rising interest rates pressured fixed income markets during the third quarter, with all major sectors posting negative returns. High yield corporates held up comparatively well due to their shorter duration and higher income.

YIELDS & RETURNS (%) 1

U.S. Treasury Market

Treasury yields rose sharply across the curve during Q3, led by intermediate maturities.

TREASURY YIELDS (%) 1

For educational purposes only. This update provides an overview of certain broad-based Fixed Income benchmarks and does not include performance of CI SBH 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.

Treasury returns were negative beyond the front end of the curve, with longer-duration bonds experiencing the largest declines.

TREASURY RETURNS (%) 1

Investment Grade

Investment grade sectors posted negative returns as higher Treasury yields weighed on performance. Shorter-duration asset-backed securities held up best, while long corporates and mortgage-backed securities experienced the largest absolute declines.

INVESTMENT GRADE INDEX & SECTOR RETURNS (%) 1

Investment grade spreads widened modestly during the quarter. The largest increases occurred in short and intermediate corporates, while long corporate spreads were relatively stable and mortgage spreads widened more noticeably.

INVESTMENT GRADE SPREADS (basis points) 1

Investment grade returns were negative across all ratings categories. BBB-rated bonds held up best in absolute terms while AAAs had the strongest duration-adjusted returns.

INVESTMENT GRADE CORPORATE CREDIT QUALITY RETURNS (%) 1

For educational purposes only. This update provides an overview of certain broad-based Fixed Income benchmarks and does not include performance of CI SBH 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.

Investment grade sector spreads generally widened during Q3. Energy and basic industry were the only sectors to tighten during the quarter.

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

High Yield

High yield corporates declined during the quarter but outperformed most other major fixed income sectors, supported by shorter duration and elevated income. B-rated bonds held up best, while CCC-rated securities lagged as lower-quality spreads widened sharply.

HIGH YIELD SECTOR RETURNS (%) 1

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

High yield spreads widened across most sectors during the quarter. Communications experienced the largest increase, followed by technology and financials, while energy was the only sector to tighten

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

For educational purposes only. This update provides an overview of certain broad-based Fixed Income benchmarks and does not include performance of CI SBH 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.

High yield default activity remained stable during Q3, with the number of issuers in default unchanged at 22. The issuer default rate ended the quarter at 3.0%, unchanged from June.

HIGH YIELD DEFAULT RATES 2

Municipals & Other

Municipal bonds posted negative returns across the curve as yields rose sharply during the quarter. Long-duration municipals experienced the largest decline, while shorter maturities were more resilient.

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

Performance across non-core fixed income sectors was mixed. Leveraged loans generated a positive return and were the clear standout, while convertibles posted the largest decline; emerging markets, global government bonds, and preferred securities also finished lower.

OTHER SECTOR RETURNS (%) 1,4

For educational purposes only. This update provides an overview of certain broad-based Fixed Income benchmarks and does not include performance of the CI SBH 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. All opinions expressed in this material are solely the opinions of SBH. 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 SBH is not under any obligation to update or correct any information provided in this material.

 

1Source: Bloomberg.

 

2Source: Bank of America Merrill Lynch.

 

3Hypothetical yields are calculated as the AA municipal yield divided by (1-tax rate). Actual tax-adjusted yields will depend on individual tax circumstances.

 

4Source: Standard & Poor’s.

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 Q3 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 Q3 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.