Taxable Bond Snapshot March 2026

Key Takeaways:

• Geopolitics dominated the macro and market backdrop in March, with the conflict in Iran driving oil prices sharply higher, reigniting inflation fears, and delaying market expectations for interest-rate easing from the Federal Reserve.
• Interest rates were higher across the curve, led by the front end of the Treasury market. Spread product also lagged Treasuries as risk assets underperformed. With rates higher and spreads wider, the US Aggregate Bond Index posted a return of -1.76% for the month.
• The Federal Open Market Committee (FOMC) held rates steady in their March meeting, citing “uncertainty” given the developments in the Middle East. The market has greatly reduced its probability of a Fed rate cut in 2026.

TAXABLE BOND MARKET UPDATE & OUTLOOK

• The US Aggregate Bond Index posted a negative return in March, down 1.76%. Performance was driven by the sharp move higher in Treasury yields, with spreads also leaking wider.
• Economic data took a back-seat to the the events in the Middle East. The data continues to point to resilient US consumers, slowing growth, and a reasonably healthy job market. However, inflation remains stubbornly above the Fed’s 2% long-term goal.
• Treasury yields increased across the curve, led by the short- to intermediate-part of the curve. Yields rose 42 – 44 basis points (bps) for 2- through 7-year Treasuries and backed up 38 bps for the 10-year, while the yield on the 30-year bond rose 30 bps.
• Investment-grade (IG) corporate credit lagged Treasuries, with spreads wider by 5 bps. Demand for new issuance remains strong despite robust supply, particularly for issuers with strong credit metrics. The market saw its busiest single day ever on March 10, printing $65 billion in new-issue IG credit deals.
• High yield (HY) credit spreads also widened, particularly as the conflict in Iran dragged on. Spreads were out 26 bps on the month, with the option-adjusted spread (OAS) of the Index reaching 317 bps. As a result, the Index posted a negative return in March, down 1.18%.
• Securitized products underperformed both Treasuries and investment-grade corporates. Agency mortgage-backed securities (MBS) lagged, with OAS widening 4 bps over the month, driven by the rate sell-off and a sharp rise in rate volatility. The sector returned -1.61%, with the MBS Index down 1.65%.
• Asset-backed securities (ABS) outperformed other securitized sectors but lagged Treasuries. Index spreads widened 4 bps, with more pronounced weakness in credit-sensitive segments and those exposed to lower credit borrowers. The ABS Index returned -0.80%.
• The preferred sector posted a return of -3.2% for the month of March, outperforming equities but lagging HY credit. Spreads for US bank preferreds widened on the month but have held up better than HY year-to-date (YTD) when adjusted for duration.

SECTOR ALLOCATION	POSITIONING
DURATION & YIELD CURVE	Our duration stance remains neutral. The FOMC pointed to risks to both sides of it’s dual mandate and also stated that the developments in the Middle East could have uncertain implications for the US economy. Given this uncertainty, we deem a neutral stance to be prudent until there is some resolution to the conflict and there is more clarity around the longer-term impacts to inflation and economic growth.
TREASURIES	We favor spread product over Treasuries in what remains an attractive carry environment, with a focus on high-quality, liquid issues and issuers.
GOVERNMENT RELATED	We are overweight taxable municipal bonds, supported by strong fundamentals and the relatively recession-resistant characteristics of the asset class.
CORPORATE BONDS	Tactically, we remain overweight corporates. While macro risks warrant some caution and valuations remain rich relative to longer-term averages despite recent widening, the credit story remains compelling for carry-focused investors. Overall, corporate fundamentals are solid, earnings remain supportive, and technicals are favorable given attractive all-in yields.
SECURITIZED	Agency MBS and ABS continue to be core components of our portfolio allocation. The securitized sector is supported by strong collateral performance. Spreads have widened recently though they have held in better than other risk assets. We feel that the sector still offers attractive relative value and favorable risk-adjusted return potential in the current environment.