Weekly Fixed Income Update | Lord Abbett
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WEEKLY FIXED INCOME UPDATE

For the week of April 19, 2021

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CHART OF THE WEEK: Convertible Bonds: Accessing Growth Companies in Fixed-Income

THE WEEK IN REVIEW

Strong economic data and indications of a moderate rise in inflation did not deter credit markets from moving higher last week. Risk assets advanced on lower yields with the 10-Year U.S. Treasury yield closing the week at 1.58%. CMBS (commercial mortgage-backed securities), MBS (mortgage-backed securities), and ABS (asset-backed securities) spreads tightened while investment-grade corporate and high yield bond spreads were flat to slightly wider. The optimistic outlook over the brisk pace of the economic recovery was met with the view that the normalization in inflation may only modestly overshoot the Fed’s (Federal Reserve) 2% inflation target. Equity markets reached new highs on both the positive news on growth as well as lower bond yields.

While convertible bonds (converts) are often used to gain equity exposure with bond protection on the downside, another use case is to diversify fixed-income exposures by including bond issues from growth companies. 2020 converts issues were a mix of distressed consumer and leisure-related companies and more traditional converts issuers that skew to the growth end of the spectrum. This year, those growth companies have dominated issuance. At over $58 billion in new issue on the quarter, there is a wealth of supply to choose from in many sectors as shown in the chart on the left. On the right, we see that this year's batch of converts issues is comprised of more newly public companies than ever before. Fixed-income investors are often concentrated in value-oriented, cyclical sectors that are at risk of disruption from these dynamic growth companies. Diversifying fixed-income exposure to include converts issues from innovative young companies can help mitigate that style concentration risk in the rest of fixed-income portfolios.

THE WEEK AHEAD

Tuesday
U.S. Redbook

Wednesday
EIA Petroleum Status Report

Thursday
Jobless Claims
Chicago Fed National Activity Index
Existing Home Sales

Friday
PMI Composite
New Home Sales





   

Index Returns

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1 Week YTD 1-YR 3-YR 5-YR
U.S. Aggregate 0.35 -2.56 -0.22 5.02 3.19
IG Corporates 0.41 -3.36 4.43 6.35 4.73
HY Corporates 0.23 1.87 18.83 6.38 7.69
Bank Loans 0.04 2.43 16.13 4.16 5.23
IG Corporates 1-3 Year 0.02 0.14 4.04 3.86 2.82
Global Aggregate 0.58 -3.25 4.97 3.24 2.78





   
   
      
      

TREASURY RATES

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Latest 1-YR Low 1-YR High 1-WK Change YTD Change 1-YR Change
2 Year 0.16 0.10 0.23 1 4 -7
5 Year 0.83 0.19 0.94 -3 47 44
10 Year 1.58 0.51 1.75 -8 67 90
30 Year 2.26 1.16 2.46 -6 62 99





   
   
      
      

CREDIT SPREADS

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Latest 1-YR Low 1-YR High 1-WK Change YTD Change 1-YR Change
IG Corporates 89 88 214 0 -7 -121
HY Corporates 293 290 775 1 -67 -436
EM Aggregate 276 263 655 0 -5 -344
CMBS 65 65 176 -3 -16 -108
MBS 8 7 75 -3 -31 -48
ABS 32 26 180 -2 -1 -148





   
      
      

Other Indicators

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Latest 1-WK Change YTD Change 1-YR Change
S&P GSCI 488.72 17.57 79.27 218.07
Crude Oil - WTI ($) 63.13 3.81 14.61 43.26
5-Yr Breakeven Inflation Rate (%) 2.62 0.05 0.66 1.93

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