Slowing GDP growth estimates, geopolitical uncertainty weighing on rate expectations, and the worst muni month since September 2023 headline this week’s fixed income commentary for the week of March 26, 2026.
Economic Commentary
- The Atlanta Fed GDPNow model fell to +2.0% annualized growth for Q1, down from +3.2% just three weeks ago. Real final sales were revised lower to +1.9% from +2.4%.
- The S&P Global manufacturing PMI rose unexpectedly from 51.6 to 52.4, marking three consecutive months above 50 for the first time in four years. The services index slipped from 51.7 to 51.1.
- Initial jobless claims were 210,000, in line with estimates. Continuing claims were 1.819 million, below the 1.849 million estimate.
Our Take
Fed funds futures are pricing in a slightly higher likelihood of a rate hike than a rate cut in 2026, with no instances of 100% probability of a cut all the way through mid-2027. Market participants and the Fed have been focused primarily on the potential inflationary impact of the war, with relatively little attention on demand destruction. Rates may have swung too far in the inflation-concern direction, and duration could begin to look more compelling at current yields.
Corporate Bond Market Commentary
Investment Grade (IG) Bonds
- IG spreads tightened 5bp to +88bp; total returns were -0.29%.
- IG new issue supply was $36.5 billion across 13 deals, all priced ahead of the Fed meeting and below the $40 billion forecast. New issue concessions were 8bp, order books were 3.8x covered, attrition was 20%, and deals tightened 29bp on average from IPT to final pricing.
- IG fund flows were +$4.8 billion.
- IG bond dealer inventories declined to record lows of -$16 billion.
High Yield (HY) Bonds
- HY spreads tightened 4bp to +324bp; total returns were -0.31% (BBs -0.31%, Bs -0.34%, CCCs -0.19%).
- HY new issue supply was only $550 million, with the lone deal from Infinity Natural Resources.
- HY fund flows were -$3.3 billion; leveraged loan funds saw outflows of -$793 million.
Our Take
Recent weak corporate bond performance has been driven largely by rising rates rather than wider spreads. If economic growth remains relatively stable, current market pricing may be a reasonable reflection of conditions. However, if geopolitical tensions persist and begin to weigh on demand, interest rates could decline and credit spreads may widen. Navigating the macro volatility is challenging, but focusing on the fundamentals of individual company credit should prove out over time.
Municipal Bond Market Commentary
- The municipal bond index lost -0.75% last week, dropping the month-to-date return to -2.16% — the worst month since September 2023.
- Muni yields rose +9, +12, +14, and +8bps at the 1-, 5-, 10-, and 30-year maturities; ratios moved to 60%, 61%, 67%, and 88% at those same tenors.
- Fund flows were +$2.369 billion, including $2.762 billion into ETFs and $393 million of mutual fund outflows.
- This week’s muni calendar totals $17 billion — the highest in four months.
- State and local government Q4 collections of Big 4 tax revenues rose 6.2% year-over-year.
Our Take
The challenging trend in the muni market continues, as higher Treasury yields coincide with heavy new issue supply and the seasonally weakest months of the year. From a creditworthiness standpoint, municipal bonds are generally holding up well — the problem is that technicals are overwhelming fundamentals at the moment. As we move through April, seasonality begins to improve, offering some light at the end of the tunnel.
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