Weekly Fixed Income Update Highlights
• Most fixed income market segments weakened, including mortgage-backed securities, investment grade and high yield corporates, preferreds, convertibles and emerging markets.
• Loans had positive total returns, while high yield corporates and emerging markets both outperformed versus similar-duration Treasuries despite their negative total returns.
• Municipal bond prices ended the week unchanged. New issue supply was $10.3B, with strong flows of $1.9B. This week’s new issue supply is $11.4B.
U.S. Treasury yields rose last week after another high U.S. inflation print and a surprisingly weak 30-year Treasury auction. Spread assets felt the pressure, but we expect strong fundamentals to support credit market returns moving forward.
Watchlist
• Treasury yields rose last week, and we continue to anticipate higher rates into year-end.
• Spread assets were pressured by higher rates, but we expect strong fundamentals to support returns moving forward
• Municipal bonds are unlikely to remain so rich.
Investment Views
Zero/negative global interest rate policy remains a key market support. Investors continue to focus on tapering and an eventual increase in interest rates.
Unprecedented global fiscal stimulus should continue to boost consumption and growth into next year.
Record supply of investment grade corporates has been followed by high levels of issuance from high yield, middle market loans and the broadly syndicated loan market. Taxable municipal supply also continues to grow.