Total Return Perspectives: May 2021

Treasury yields fell again in May and credit spreads approached recent tights as the virus continued to recede, allowing the reopening of the economy to progress. Economic data was noisy this month, largely due to base effects, but confirms the ongoing trend of renewed growth and signs of inflation.


    • The Bloomberg Barclays U.S. Aggregate Bond Index (BC Agg) posted a second consecutive positive month, rising 0.33%. The Corporate Index (+0.77%) led the other major investment grade sectors again, as spreads continued their march tighter. Treasuries (+0.34%) performed in line with the broader index as yields fell across the curve. Mortgage backed securities (MBS) were the clear laggard of the month (-0.18%) as rich valuations and talk of Fed tapering weighed on the sector.
    • Economic data continued to reflect improvement. The headline non-farm payroll number fell well short of expectations (266k vs 1,000k) but when looking at the JOLTS index (8.123m vs 7.500m) the shortfall appears to be due to workers’ (un)willingness to return to work rather than the availability of jobs. CPI rose 0.8%, and the year-over-year number climbed to 4.2%. Producer prices rose 0.6% for the month, pushing the year-over-year number to an eye-popping 6.2%.
    • The Treasury curve continued its modest rally from the previous month, led by the belly of the curve. The 2-year yield fell 2 basis points to 0.14%, the 5-year yield fell 6 basis points to 0.80%, the 10-year yield fell 4 basis points to 1.59%, and the 30-year yield fell 1 basis point to 2.28%. The lone point on the curve which ended the month higher in yield was the 20-year, which rose 2 basis points higher to 2.20% as the market struggled to digest supply from the auction.