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Market Review & Outlook 1Q19 - Investment Grade: Taxable and Tax-Exempt Fixed Income

After ending three years of gradual tightening, the Federal Reserve pivoted and signaled a more accommodative policy stance that helped investment grade spread product achieve healthy gains in the first quarter, led by BBB corporate issues. But a synchronized global slowdown increased the probability of a global recession and rate cut later in the year.

Robust demand for investment grade municipal bonds was largely driven by the cap on state and local tax (SALT) deductions under tax reform. As the muni yield curve flattened, many investors, particularly in high tax states, bought bonds with longer maturities and lower credit ratings, which in turn provided the best muni returns in the quarter.

1Q 2019 Investment Grade Taxable and Tax-Exempt Fixed Income