Fixed Income Viewpoints: What's (Not) Happening in the Credit Markets

The Viewpoints series gives investors Lazard’s perspectives on the latest macroeconomic and fixed income news and trends. In this edition, Lazard Asset Management's fixed income team share their assessment on the disparate reaction of U.S. government bonds and corporate bonds to tightening financial conditions in the country. 

Fixed income markets overall have stabilized after the tremors in the banking sector last month. But in a curious development, government bonds and credit securities have reacted very differently to the signs of tightening financial conditions that have followed, especially in the United States.

U.S. Treasury bonds have soared since the banking turmoil began on 8 March, pushing the 10-year yield down more than 50 basis points (bps) to about 3.4% by mid-April. By contrast, both U.S. investment grade and high yield credit spreads, after widening initially, turned back around and were almost unchanged year to date.

When Lazard’s fixed income professionals met in mid-April, they discussed how the bond markets around the world had coped with the recent tumult in the banking sector and whether a catalyst would soon dislodge credit and other risk assets, including equities which were up 7% so far in 2023.

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