- After keeping the fed funds target rate range at 5.25% – 5.50% for over a year, the Federal Reserve (Fed) delivered a 50bp rate cut at its September FOMC meeting, citing steadily declining inflation and increasing concerns in the labor market
- August’s inflation and labor market readings ostensibly supported the Fed’s move, with CPI and Core PCE growing by 2.5% and 2.7% year-over-year, respectively, and the change in nonfarm payrolls coming in below expectations for a second consecutive month
- Rates fell across the Treasury curve over the month, with the front end experiencing the sharpest declines; the spread between the 2- and 10-year Treasury yields turned positive for the first time in over two years, ending the month at 14bps
- The 30-year Treasury yield declined by 27bps to 3.93% in the first half of the month before climbing back to 4.12%, finishing the month down just 8bps from where it started
- Investment-grade supply hit a new high for the month of September as issuers eagerly flocked to borrow at enticing funding levels; issuance totaled a whopping $171 billion, surpassing the previous September record of $164 billion set in 2020
- Year-to-date issuance stands at $1,263 billion, a 29% increase from this point last year
- Despite the surge in new issue supply, investment-grade corporate spreads tightened by 4bps to 89bps, underscoring the continued demand from investors; yields fell by 22bps to 4.72%
- Much like their high-grade counterparts, high-yield issuers also had a bustling month, bringing almost $37 billion in new deals to the market, well-above the roughly $29 billion average seen over the past six Septembers
- The Bloomberg High Yield Index posted its fifth straight month of gains, with high-yield spreads tightening by 10bps to 295bps and yields falling from 7.30% to 6.99%
- Rejuvenated by expectations of lower rates and increased investor activity in the commercial real estate market, commercial mortgage-backed securities (CMBS) added 23bps of excess returns during the month; CMBS spreads tightened by 4bps to 93bps, below the 5-year average of 101bps
- Consistent inflows into mutual funds and ETFs helped soak up the $49 billion in municipal new issue supply over the month; the Bloomberg Municipal Index posted a total return of 1% in September
Treasury Yield Curve
Month-to-Date Returns
