Economic Commentary
- The Philadelphia Fed Business Outlook dropped from +12.5 to -26.4, well below the expectation of +2.2.
- The Index of Leading Indicators declined -0.7%, below expectations of -0.5% and the revised prior month’s -0.2%.
- The Richmond Fed survey was also weak, with Non-manufacturing activity declining to -42.7, the manufacturing index to -13, and business conditions to -30. All three regional Fed surveys for April showed weakness and levels not seen since 2020.
- The April PMI was 50.7 for manufacturing (slightly above expectations), 51.4 for services (below expectations), and 51.2 composite, below the 52.0 expectation and 53.5 in the prior month.
- The Fed’s Beige Book captured the weeks leading up to April 14, squarely in the midst of tariff policy jitters. The sentiment echoed the feelings of higher future prices and lower future growth found in other recent surveys: “The outlook in several Districts worsened considerably” and most firms “expected to pass through additional costs to consumers.” If there’s any glass-half-full perspective from reading the text, it’s that sentiment hasn’t yet channeled into severely curbed business activity. Firms are “taking a wait-and-see approach to employment” and “preparing for layoffs,” rather than reporting substantial employment declines, and “economic activity was little changed since the previous report.”
- US Treasury auction allotment data released yesterday showed no sign of waning foreign appetite for Treasuries two weeks ago.
- Durable goods orders of +9.2% were well above expectations of 2.0%; excluding transportation orders were flat and below expectations.
Our take: A continuation of the recent trend, where backwards-looking hard data remains solid, because of front-running behavior by businesses and consumers and also because the full impact had not yet been felt, while concurrent or forward-looking measures like confidence and sentiment are rolling-over. We expect this will continue to be the case until more clarity emerges, perhaps not until the summer or even later. The longer the uncertainty lingers, the worse this pause or freeze will have on actual economic data in the months ahead. The bond market’s concern around Fed independence caused large swings in US Treasuries over the last several trading days. It appears for the moment that Jerome Powell is safe, and bonds have staged a relief rally. Yields seem to be moving lower from their current position in the middle of the trading range, and intermediate duration should grind as a result. When we approach the lower end of the range, it will be prudent to trim some duration, again, with the full expectation of the next round of policy-related volatility.
Corporate Bond Market Commentary
- IG spreads tightened 7bp last week to +111bp and total returns were +1.23%.
- IG new issuance was $36.1 billion, almost entirely Banks ($33.5 billion). Order books were 3.6x oversubscribed and concessions were only 5bp. Attrition was limited at 14%.
- Outflows of $7.1 billion were the second-largest of 2025.
- HY spreads were 42bp tighter to +402bp and total returns were 1.34% (BBs +1.28%, Bs +1.40%, CCCs +1.47%). CCCs are still down -3.15% YTD, and HY -0.18%.
- Outflows were $2.8 billion. Notably, leveraged loans had their sixth consecutive week of outflows $1.4 billion.
- New issuance was $2.5 billion last week, with the sole issuer Venture Global Plaquemines LNG facility.
Our take: Corporate bonds weathered some of the macro-driven outflows to recover some performance last week. The lack of new issue supply, high fund cash balances, April 15 coupon payments, and low dealer inventories all helped the technical trading set-up. On risk-on days, offerings have been scarce, and bonds are gapping higher in price, with poorer-performing bonds or heavily shorted bonds bouncing more. It is an environment fertile for active management, fundamental credit picking, and trading around the volatility. Earnings season is the next test, where we expect some single-name performance, both good and bad.
Municipal Bond Market Commentary
- Muni and US Treasury yields fell across the curve for the holiday shortened week ending April 17, 2025. AAA muni yields were down 16, 16, 16, and 15 bp at 2, 5, 10 and 30 years and US Treasury yields were down 16, 22, 16, and 7 bps at 2, 5, 10 and 30 years.
- AAA Muni/Treasury ratios fell 1% at 2 and 10 years, rose 1% at 5 years, and fell 2% at 30 years to end the week at 77%, 79%, 79% and 94% respectively. AA Muni/AA Corporate ratios fell 2% at 2, 10, and 30 years and fell 1% at 5 years to end the week at 77%, 76%, 74%, and 84% respectively.
- Municipal bond funds had outflows of $1.26 billion for the weekly period ending April 16.
- Muni new issue volume is expected to be ~$12.3 billion this week.
Our take: Now that we’re past tax day we expect fund flows and selling pressure to moderate if not reverse. The 30-day net supply figure from 4/21/25 indicates new issuance will be $1.7 billion less than reinvestment dollars and Muni/UST ratios are at the highest levels since 2022, which should help draw investors back into municipals. A stable market would be helpful, but as long as we remain in a trade war all sectors of the bond market will continue to be subject to headline driven short-term volatility.
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