The U.S. debt binge. U.S. bond bulls are winning in the global search for yield. Negative-yielding debt has climbed to $10.4 trillion, its highest point since September 2016. At the same time, the 10-year Treasury yield fell 31 basis points (0.31%) in March as prices jumped, and the Bloomberg Barclays Aggregate Bond Indexnotched its best monthly performance in four years. International demand has played a pivotal role in fixed income’s recent strength, as we’ll explain later today on the LPL Research blog.
Corporate bonds surge. Fixed income’s strength was most apparent in U.S. corporate bonds, which just posted their best quarter since the beginning of the economic expansion. Investment-grade debt, represented by the Bloomberg Barclays U.S. Corporate Total Return Index, climbed 5.1% in the first quarter, while high yield debt, represented by the Bloomberg Barclays U.S. Corporate High Yield Total Return Index, rose 7.3%.
Steepening. It’s been a year of flattening for the U.S. yield curve so far, but yesterday’s jump in longer-term yields was a promising sign. On Monday, the spread between the 3-month and 10-year Treasury yields closed at 12 basis points (0.12%) amid encouraging Chinese PMI data. The spread between the 2-year and the 10-year Treasury yield also climbed to 17 basis points (0.17%), its highest point in nearly a month. Yield curve inversion has created a lot of buzz lately, as short-term rates fall below longer-term rates in a move that has preceded each of the last nine recessions. We’re monitoring the shape of the curve, but we aren’t concerned about the inversion yet, as the spread between the 3-month and 10-year yields has become much more predictive of a recession at -50 basis points (-0.50%).
NEW Market Signals podcast. In this week’s podcast, strategists Ryan Detrick and Jeff Buchbinder discuss four factors that could affect financial markets through the remainder of 2019 and four that could affect the overall economy. Subscribe to the free Market Signals podcast series on iTunes, Google Play, Spotify, or wherever you get your podcasts!
- Durable Goods Orders (Preliminary, MoM Feb)
- Eurozone PPI Report (Feb)
- Nikkei Japan Composite PMI (Mar)
- Caixin China Composite PMI (Mar)
- Caixin China Services PMI (Mar)
- ADP Employment Report (Mar)
- Markit US Services PMI (Mar)
- Markit US Composite PMI (Mar)
- ISM Non-Manufacturing Index (Mar)
- Markit/BME Germany Composite PMI (Mar)
- Markit Eurozone Composite PMI (Mar)
- Eurozone Retail Sales (Feb)
- Initial Jobless Claims (Mar 30)
- Nonfarm Payrolls (Mar)
- Unemployment Rate (Mar)
- Japan Leading Index (Preliminary Feb)
- Japan Coincident Index (Preliminary, Feb)
- Germany Industrial Production (Feb)
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Index data obtained via FactSet
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