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 Index notched 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)
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.
All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All performance referenced is historical and is no guarantee of future results.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
The investment products sold through LPL Financial are not insured deposits and are not FDIC/NCUA insured. These products are not Bank/Credit Union obligations and are not endorsed, recommended or guaranteed by any Bank/Credit Union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.
Index data obtained via FactSet
For Public Use – Tracking # 1-183609 (Exp. 3/20)