Fixed-income performance in the fourth quarter was mixed, as the shape of the yield curve compressed to its flattest level since before the 2008-09 global financial crisis and corporate credit spreads diverged between the investment-grade and high-yield sectors. Similarly, year-to-date performance was significantly affected by the flattening curve, as the performance of short-duration indexes was muted, whereas long-duration indexes outperformed. While there were a few spikes in volatility earlier in the year, volatility was subdued in the fourth quarter and ended the year near historical lows.
During the fourth quarter, the yield on the 2-year Treasury bond rose 40 basis points and has risen 69 basis points since the end of 2016. The yield on the 2-year has risen even more thus far this year and is trading at its highest yield since October 2008. While short-term rates have been rising quickly, the yield on the 30-year Treasury bond declined 12 basis points in the fourth quarter and dropped 25 basis points over the course of the year, trading in its lowest quartile since the global financial credit crisis. As the yield on short-term bonds rose and the yield on long-term bonds fell, the spread between the 2-year Treasury and the 10-year Treasury compressed to 53 basis points at year-end, its narrowest level since before the global credit crisis.