Weekly Fixed Income Update | Lord Abbett
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WEEKLY FIXED INCOME UPDATE

For the week of March 1, 2021

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CHART OF THE WEEK: Recent 10-Year U.S. Treasury Yield Volatility

THE WEEK IN REVIEW

Risk assets were mostly lower last week amid rate volatility and increasing inflation concerns. While high yield spreads were modestly wider, investment-grade corporate spreads ended the week mostly unchanged, only one basis point wider on the week.  However, high yield is still well ahead of investment grade corporates for the year-to-date period, as high-grade bonds have not been able to absorb the sharp move higher in rates.  Meanwhile, CMBS (Commercial Mortgage-Backed Securities) spreads were modestly tighter over the past week.

The market’s ability to digest last week’s $62 billion 7-Year U.S. Treasury auction was clearly challenged and triggered a spike in the 10-Year U.S. Treasury yield. The sale coincided with the recent rise in both nominal and real rates brought on by concerns that a new round of stimulus and rebounding economic growth raises uncertainty in both monetary policy and inflation. Although auction performance could be a one-off as a result of the timing of supply hitting the market during a particularly volatile period, it has raised concern over secondary market depth.

One fundamental feature of current Treasury market functioning is the dominance of high frequency market makers. Approximately half of daily Treasury volume occurs in the interdealer market with the majority employing electronic trading programs that kick in as rate volatility rises. Current levels of depth in the interdealer market have remained relatively robust, assisted in part by the Federal Reserve’s (Fed) asset purchase program picking up approximately $80 billion in Treasuries per month. Despite the brief spike in rates and volatility seen last week, there has not been an overall deterioration in Treasury market liquidity. Although rate momentum could persist, the Fed could extend purchases to longer maturity securities to address any premature market-led tightening in hike expectations.

The Week Ahead

Tuesday
U.S. Motor Vehicle Sales

Wednesday
U.S. ADP Employment Report, EIA Petroleum Status

Thursday
U.S. Jobless Claims, U.S. Productivity & Costs, U.S. Factory Orders

Friday
Unemployment Situation, International Trade in Goods & Services





   

Index Returns

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1 Week YTD 1-YR 3-YR 5-YR
U.S. Aggregate -0.36 -2.15 2.06 5.30 3.58
IG Corporates -0.51 -2.90 2.57 6.60 5.58
HY Corporates -0.65 0.67 6.75 6.17 8.93
Bank Loans 0.09 1.95 4.51 4.24 5.89
IG Corporates 1-3 Year -0.12 0.06 3.24 3.87 3.04
Global Aggregate -0.66 -2.59 5.32 3.74 3.66





   
   
      
      

TREASURY RATES

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Latest 1-YR Low 1-YR High 1-WK Change YTD Change 1-YR Change
2 Year 0.13 0.10 1.14 2 1 -101
5 Year 0.73 0.19 1.12 16 37 -39
10 Year 1.40 0.51 1.48 7 49 9
30 Year 2.15 1.12 2.28 2 51 34





   
   
      
      

CREDIT SPREADS

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Latest 1-YR Low 1-YR High 1-WK Change YTD Change 1-YR Change
IG Corporates 90 88 373 1 -6 -18
HY Corporates 326 315 1100 7 -34 -99
EM Aggregate 272 263 720 8 -9 -56
CMBS 70 68 260 -3 -11 2
MBS 20 11 115 2 -19 -31
ABS 29 26 325 1 -4 -2





   
      
      

Other Indicators

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Latest 1-WK Change YTD Change 1-YR Change
S&P GSCI 476.99 6.90 67.53 100.78
Crude Oil - WTI ($) 61.50 2.26 12.98 12.77
Trade Weighted Dollar* 128.01 0.00 0.00 0.00
5-Yr Breakeven Inflation Rate (%) 2.42 0.11 0.46 0.89

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