Taxable Fixed Income 2Q21 Market Review & Outlook

July 14, 2021 — Fixed income investors had a reprieve after a tough first quarter. Longer rates fell 25 to 30 basis points and credit spreads tightened. Front-end rates rose on a more hawkish tone from the Fed, which caused a pronounced flattening of the yield curve. The result was positive returns across all major fixed income markets, with longer-duration and higher-yielding markets outperforming. Credit outperformed core markets (3.2%), while MBS lagged (0.33%), and longer-duration components of Treasury and credit indices returned 5% to 7%. Given the positive trend in risk markets and tighter overall spreads, non-core fixed income markets had strong returns, with high yield returning 2%, and preferred stocks and emerging market debt in the 3% to 4% range.