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Credit Insights

Rising Rates + Widening Credit Spreads = Fixed-Income Losses

Rising interest rates and widening credit spreads have taken their toll.

Performance in the fixed-income markets has been negative across the board in the first quarter as rising interest rates and widening credit spreads have taken their toll. The Morningstar US Core Bond Index, our broadest measure of the fixed-income universe, declined 2.00% in the first quarter through March 22. The decline was driven by the increase in interest rates across the entire yield curve as well as widening corporate credit spreads.

Underlying the Core Bond Index, the Morningstar US Short-Term Core Bond Index registered a loss of 0.51% as short-term rates rose to their highest levels in over a decade. The US Intermediate-Term Core Bond Index declined 1.63% and the US Long-Term Core Bond Index fell 4.26% as rising rates more than offset the yield carry from the underlying bonds in the indexes. In the Treasury market, the Morningstar US Government Bond Index fell 1.69% as the negative impact of rising rates on bond prices overwhelmed the yield carry for the quarter. Similarly, the Morningstar US Government Agency Bond Index declined 0.87%. Although inflation is edging up, inflation expectations have not risen enough to support prices of Treasury Inflation-Protected Securities, and the Morningstar US TIPS Index fell 1.33%.