Investment Grade Corporate Market Review and Outlook

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Investment Grade Corporate Market Review and Outlook Q1-2022

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Investment Grade Portfolio Team
MAR 31, 2022

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The first quarter of 2022 was beset with elevated volatility and uncertainty as markets digested greater than anticipated inflation prints, the geopolitical events unfolding in Eastern Europe, and the forthcoming actions from the Federal Reserve. The CPI data for 2021 ultimately printed 7.5%1 and the Fed continued to emphasize its more hawkish stance for achieving price stability and curtailing inflation. The 10-year Treasury yield started the year at 1.51% and steadily increased until Russia’s invasion of Ukraine briefly pulled rates back before the path upward continued as Jerome Powell announced an expediated rate hiking schedule during the March FOMC meeting. Ultimately, the 10-year Treasury yield ended the quarter 83 basis points higher at 2.34%.2 The MOVE index, a measure of interest rate volatility, spiked by over 80% intra-quarter only to end nearly 25% lower than the peak levels.3 The effects of the Russia/Ukraine conflict are felt across the world as a sharp increase in commodity prices has shocked markets with natural gas rising 60% and Brent Crude increasing 64% intra-quarter before ending the period at $107/ barrel.4 Overall, the Treasury curve shifted upwards across all maturities with dramatic flattening led by the front end. The 2-year saw the most precipitous increase over the quarter, rising 160 basis points, leaving the 2s/30s curve 106 basis points flatter at a spread of 11 basis points and the 2s/10s curve 77 basis points flatter and slightly inverted.5