Fixed Income Update - Bond Markets

  April 29, 2016

Contrary to what was expected, bonds outperformed stocks in the first quarter. Bond markets followed the equity market lead generating gains across various fixed income sectors. Corporate, municipal, and government bond sectors all saw price increases in March, ending the 1st quarter on a favorable note even as the Fed’s threat of a rapid rate rise was a concern earlier in the year. Fixed income analysts gauge the attractiveness of the corporate bond sector by how much more yield corporate bonds pay relative to U.S. government bonds, also known as a spread. The recent spread between corporate and government bonds rose to levels making corporate bond yields attractive even at the current low yields. The expectation is that once the Fed continues its tightening, the spread will decrease because of higher yielding government bonds.

Fed Chairperson Janet Yellen made note that falling bond yields during the first quarter had helped to offset tightening financial conditions brought about by a sliding stock market.

Sources: Bloomberg, Federal Reserve

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