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Bond yields continued to rise last week as markets digested rising inflation expectations and the prospect of increased Treasury issuance. The yield curve rose in near-coincidence, with 2-year and 10-year yields rising 10 basis points to 4.99% and 4.62%, respectively. The 30-year yield rose 9 basis points to end the week at 4.71%.

We believe a potential catalyst for the US bond market will be the Treasury's Quarterly Borrowing Announcement (QRA) scheduled for next Wednesday, May 1st. Fiscal uncertainty has been a major driver for the market due to the huge government spending since COVID-19. In its last QRA on January 31st, the Treasury increased the coupon bond issuance and stated that “based on its current borrowing needs projections, the Treasury does not expect to need to increase the size of its nominal coupon bond or FRN auctions beyond those announced today, at least for the next several quarters.” Attention will be focused next week on whether the Treasury will change the coupon bond profile.

Since January 31, the reassessment of Fed expectations, along with increased coupon bond issuance, have undoubtedly contributed to the rise in yields and term premiums.

The past few weeks have seen the first true “risk-off” trend of the year, with the S&P 500 dropping 3% last week, the index's biggest drop since the Silicon Valley banking crisis in March 2023. However, corporate credit spreads have remained quite stable, with investment-grade spreads widening by just 3 basis points over the week and high-yield spreads increasing by 13 basis points. Corporate headline yields have contributed to stable demand and resilience for companies, which will continue until a downside surprise in growth and earnings data significantly weakens fundamentals. The chart below shows the relative yields of investment-grade corporate bonds and equity earnings, illustrating the continued demand for bonds amid rising equity volatility.

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Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation to buy or sell any security, strategy or investment product. The facts, information, charts, analysis and data in this report have been obtained from and are based on sources that Sage believes to be reliable, but we do not guarantee their accuracy and the underlying information, data, figures and public information have not been verified or audited by Sage for accuracy or completeness. Furthermore, we make no representation that the information, data, analysis and charts are accurate or complete and therefore should not be relied upon as such. All results contained in this report constitute the opinion of Sage as of the date of this report and are subject to change without notice due to various factors, including market conditions. Investors should make their own decisions regarding their investment strategies based on their specific investment objectives and financial situation. All investments involve risk and may fall in value. Past performance is no guarantee of future results.

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