Columbia Threadneedle Fixed Income Monitor: February 2024

Track your fixed income opportunities with these monthly updates.

One way to understand where opportunities lie in the broader bond market is to look at credit spreads, which measure the difference in yield between a bond and a risk-free benchmark bond (such as U.S. Treasury bonds). Same period.

When looking at opportunities across bonds, credit spreads indicate how much more an investor receives in return for taking on additional risk.

If the spread is higher than the long-term average, it is called a wide spread. If it is below the long-term average, it is said to be tight.

Spreads are constantly changing, and these changes are driven by investor psychology and risk perception.

Our proprietary Fixed Income Monitor compares current spreads across fixed income asset classes against a 20-year history to help investors identify opportunities across the fixed income sector.

Key Takeaways February 2024

• Positive momentum heading into the new year slowed in January as investors digested firmer-than-expected economic data.
• Volatility has eased compared to previous periods. After an initial sell-off, spreads ended the month essentially unchanged across credit and securitized assets. Rates rose slightly for most of the trading day but ended near their starting levels.
• Spreads remain tight across many sectors, but yields are at multi-year highs. This has reignited demand for high-quality, low-risk income across the fixed income landscape as the Federal Reserve moves toward easing monetary policy.

Learn more about the importance of understanding spreads from Gene Tannuzzo, Global Head of Fixed Income.

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When we talk about spread instruments in the bond market, we mean any bond that is not a risk-free asset. So in the taxable bond market we are talking about any bond that is either not a Treasury bond or is trading at an additional yield compared to a Treasury bond.

In the municipal bond market, we are talking about any bond that is not AAA, general obligation bond. The main role of spread products is to add additional yield to your portfolio.

When looking at spreads over a long period of time, if the spread is higher than its long-term average, it is considered wide or cheap. And if they are more expensive than their long-term average, we can call them rich or tight.

So typically we look for spread products or opportunities in the bond market where credit spreads are wide or cheap relative to the risks inherent in those securities.

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Editor’s note: The summary bullet points for this article were selected by Seeking Alpha editors.