May Recap: Rally in Treasuries Drives Market Strength

May Fixed Income Market Update

May highlights from the fixed income markets:
  • Yields fell across the Treasury curve in May, with the most significant moves coming in the belly of the yield curve. Treasury returns were strong across all maturities, with particularly strong results on the long end.
  • The Bloomberg U.S. Aggregate Index (the Agg) returned 1.70% in May, outperforming similar duration Treasuries. Every major sub sector produced positive absolute and excess returns. Mortgage backed securities (MBS) posted the strongest absolute and excess returns but remain the worst performers year to date.
  • Spreads were either flat or moderately tighter across every investment grade (IG) corporate bond sector.
  • High yield (HY) corporate bond spreads were mixed. Spreads on bonds within the consumer non cyclicals and utilities sectors tightened the most, while spreads on transportation and communications bonds widened the most. The high yield default rate improved for the second consecutive month.

Read on for more details and analysis.

Market Summary

May was a strong month for Treasuries, Corporates, and nearly all fixed income sub categories. Municipal bonds were among the few sectors to show weakness.

U.S. Treasury Market

Treasury yields fell across the entire curve, most notably in the belly of the curve.
Treasury returns were solid across the curve, especially on the long end.

Broad Investment Grade

The Agg had its strongest month so far in 2024. Duration performed well. Every Agg sub category posted positive returns and outperformed similar duration Treasuries.
Spreads tightened across all IG tenors and on current coupon MBS.
All IG ratings categories had positive absolute returns. Only AAA corporates underperformed similar duration Treasuries. BBBs had the strongest excess returns.
Spreads were flat or tighter for every IG corporate sector. The largest move came in the Financials.

High Yield

High yield returns were skewed toward the higher rated categories. CCCs posted a positive absolute return but underperformed Treasuries.
HY corporate spreads were mixed. Spreads on consumer non cyclicals and utilities sector bonds tightened the most, while spreads on transportation and communications bonds widened the most.
The high yield default rate improved in May and remains low versus historical levels.

Municipals & Other

Muni yields rose across the middle of the curve and fell or were stable on the short and long ends of the yield curve. Performance was negative in all but the long duration category.
All of the “other” fixed income adjacent categories generated positive returns in May. Preferred stocks and convertible bonds were the strongest performers.

Learn more about SBH’s Fixed Income Strategies.

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.

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.

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