(The following commentary is a summary of discussions among members of the Breckinridge Capital Advisors Investment Committee as they reviewed monthly activity in the markets and investment returns. The members of the Investment Committee, under the leadership of Co-Chief Investment Officers Matthew Buscone and Jeffrey Glenn, CFA, are Co-Heads of Research, Nicholas Elfner and Adam Stern, J.D., M.P.A.; and Portfolio Manager and Director, Corporate Research, Josh Perez, CFA.)

Market Review

Shifts in Treasury yields during January included a decline for maturities 10 years and shorter, and an increase for maturities with longer maturities (See Figure 1). Yields by the end of January were lower for 2-, 5-, and 10-year maturities by 4, 5, and 3bps, respectively. The yield for the 30-year Treasury was 1bp higher.

On the other hand, expectations for volatility, as measured by the Intercontinental (ICE) Bank of America/Merrill Lynch Option Volatility Estimate (MOVE) Index, portrayed a greater sense of concern among bond investors (See Figure 2).

There was ongoing uncertainty about fiscal and economic policy under the incoming administration of President Donald J. Trump. In addition, the January 28 and 29 meeting of Federal Open Market Committee (FOMC) kept investors wondering about the rate decision and what the Federal Reserve’s (Fed’s) statement would infer about the timing and pace of future changes. The Fed chose to keep rates unchanged.

While the timing and specifics remain to be determined, the Breckinridge Investment Committee (IC) continues to expect the Republican-led White House and Congress policy focus will likely be on tariffs, immigration, taxes, and regulations. There are potentially inflationary and disinflationary implications for policy and regulatory initiatives during the first few weeks of the new administration. While the announcements were fast and extensive, insight about specifics and execution were slower to emerge, which tended to increase uncertainty.

The IC’s base case remains to be one of slower, but positive real growth due to the lag effect of tight policy and higher interest rates over the last two years on small businesses and lower-income households. Data continued to show solid hiring trends, employment conditions, and consumer spending, which the Fed cited in its decision to hold rates steady. A risk to the IC outlook is that a pro-growth agenda could keep growth and inflation higher.

Municipal Market Review

The Municipal Bond Index gained 0.67 percent in January compared with the Treasury Index’s 0.52 percent gain. During January, municipal yields fell by

Source: Municipal Market Data, as of January 31, 2025. Past performance is not indicative of future results.
11, 8, and 7bps, respectively, for 2-, 5-, and 10-year maturities and gained 9bps at 30-years (See Figure 4).

Bonds in the 6- to 12-year range tended to outperform. BBG data showed that municipal bonds with lower credit quality ratings outperformed those with higher ratings.

Per to The Bond Buyer, January bond issuance totaled $35.2 billion, up 10.8 percent from $31.8 billion in 2024. January's total also surpasses the 10-year average for the month of $28.7 billion. In January, total asset flows to municipal, bond fund was more than $3.4 billion, per The Bond Buyer.

Corporate Market Review

On a total return basis, the Corporate Index gained 0.55 percent, while earning a positive excess return of 0.13. The U.S. Corporate Index OAS was 79bps, tightening by 1bp M/M.

According to BBG data, the best-performing sectors were Sovereigns, Healthcare, Aerospace/Defense, Railroads, and Pharmaceuticals. The worst-performing were Electrics, Natural Gas, Transportation Services, Property & Casualty Insurers, and Foreign Local Government.

BBG reported that, bonds rated BBB turned in the best performance compared to other bonds across the IG credit quality spectrum. Bonds rated A and those rated AA were the next best performing quality rating segments. Corporate bonds with maturities in the 5- to 7-year range had relatively higher returns than bonds with shorter and longer maturities.

Total fixed-rate, gross IG supply was $265.2 billion, which left net new supply at $160.6 billion after redemptions in excess of $104.5 billion, BBG reported. The comparative totals for the prior month were $34.5 billion issued and negative net issuance of $12 billion, after redemptions of more than $46 billion.

Through January 22, more than $28.8 billion flowed into long-term taxable bond mutual and exchange traded funds (ETFs) during the month, per the Investment Company Institute (ICI).

Securitized Market Review 

All MBS and ABS sectors delivered positive total and excess returns for the year ended December 31, 2024, according to BBG data.

Per BBG data, the notable outperformance of CMBS, including Agency and Non-agency CMBS, compared with MBS continued. Among conventional¹² and Ginnie Mae MBS, higher coupon (6 and 6.5) conventional mortgages outperformed others in the category, while Ginnie Mae¹³ mortgages with 3 and 3.5 coupons outperformed their peers. 

Among ABS, those backed by auto loans had marginally higher total and excess returns, at 0.43 and 0.06 percent, respectively, than ABS backed by credit card loans.

Equity Market Review

The S&P Index earned a monthly return of 2.8 percent, more than recovering the 2.4 percent loss of December 2024. The Russell 1000 Value Index¹⁴ gained 4.6 percent, substantially higher than the nearly 2 percent return earned by the Russell 1000 Growth Index.¹⁵ Momentum and size were leading performance factors, while low volatility and dividend yield lagged.

The Chicago Board Options Exchange (BoE) Volatility Index¹⁶ (VIX) moved in a fairly narrow range during the month (See Figure 5).

At a sector level, 10 of 11 sectors gained on the month. Communication Services (9.1), Health Care (6.8), Financials (6.5), Materials (5.6), Industrials (5.1), Consumer Discretionary (4.4), Utilities (2.9), Energy (2.1), Consumer Staples (2.0) and Real Estate (1.8) earned positive returns, while Information Technology (-2.9) declined.

As of January 31, more than three-quarters of S&P 500 companies that have reported quarterly results beat Wall Street’s forecasts, according to FactSet.

[1] U.S. Department of the Treasury, as of January 31, 2025.

[2] Municipal Market Data, as of January 31, 2025.

[3] Municipal bond performance is as measured by the BBG Managed Money Short/Intermediate (1-10) Index, which measures the performance of the publicly traded municipal bonds that cover the USD-denominated short/intermediate term tax-exempt bond market, including state and local general obligation bonds, revenue bonds, insured bonds, and pre-refunded bonds. It is rules-based, and market-value weighted. You cannot invest directly in an index.

[4] The BBG U.S. Treasury Bond Index is an unmanaged index of prices of U.S. Treasury bonds with maturities of 1 to 30 years. You cannot invest directly in an index.

[5] Municipal bond issuance is as reported by The Bond Buyer, as of January 31, 2025.

[6] IG Corporate bond performance is as measured by the BBG U.S. Corporate Investment Grade Bond Index, an unmanaged market-value-weighted index of investment grade corporate fixed-rate debt issues with maturities of one year or more. You cannot invest directly in an index.

[7] Excess return is the return earned by an investment that carries risk (such as a corporate or securitized bond) when compared to an investment with the same maturity considered to be risk free (such as a U.S. Treasury bond).

[8] The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. Itis a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index.

[9] The Bloomberg MBS Index tracks agency mortgage-backed pass-through securities (both fixed-rate and hybrid ARM) guaranteed by government-sponsored enterprises (GSEs) Government National Mortgage Association (Ginnie Mae) (GNMA), Federal National Mortgage Association (Fannie Mae) (FNMA), and Federal Home Loan Mortgage Corporation (Freddie Mac) (FHLMC). The index is constructed by grouping individual pools into aggregates or generics based on program, coupon, and vintage. You cannot invest directly in an index.

[10] The Bloomberg U.S. CMBS Investment Grade Index measures the market of U.S. Agency (GNMA, FNMA, and (FHLMC) and U.S. Non-Agency conduit and fusion CMBS deals with a minimum current deal size of $300mn. You cannot invest directly in an index.

[11] Bloomberg U.S. Asset-Backed Securities (ABS) Index is the ABS component of the Bloomberg U.S. Aggregate Bond Index, a flagship measure of the U.S. investment grade, fixed-rate bond market. The ABS index has three subsectors: credit and credit cards, autos, and utility. You cannot invest directly in an index.

[12] Conventional MBS are issued by the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC).

[13] Ginnie Mae MBS are issued by the Government National Mortgage Association (GNMA).

[14] The Russell 1000® Value Index is an unmanaged market capitalization-weighted index of value-oriented stocks of U.S. domiciled companies that are included in the Russell 1000 Index. Value-oriented stocks tend to have lower price-to-book ratios and lower forecasted growth values. You cannot invest directly in an index.

[15] The Russell 1000® Growth Index is an unmanaged market capitalization-weighted index of growth-oriented stocks of U.S. domiciled companies that are included in the Russell 1000 Index. Growth-oriented stocks tend to have higher price-to-book ratios and higher forecasted growth values. You cannot invest directly in an index.

[16] The Chicago Board Options Exchange (OEX) Volatility (VIX) Index is the ticker symbol and name for the Chicago Board Options Exchange's (CBOE) Volatility Index, a measure of the stock market's expectation of volatility based on S&P 500 index options. You cannot invest directly in an index.

BCAI-02052025-tj1t6moo (2/5/2025)

DISCLAIMERS:

This material provides general and/or educational information and should not be construed as a solicitation or offer of Breckinridge services or products or as legal, tax or investment advice. The content is current as of the time of writing or as designated within the material. All information, including the opinions and views of Breckinridge, is subject to change without notice.

Not all securities or issuers mentioned represent holdings in client portfolios. Some securities have been provided for illustrative purposes only and should not be construed as investment recommendations.

Yields are snapshot metrics for securities that can help investors in valuing a security, portfolio or composite. Yields do not represent performance results but are one of several components that contribute to the return for a security, portfolio or composite. 

Past performance is not a guarantee of future results. Any index results shown are for illustrative purposes and do not represent the performance of any specific investment. Indices are unmanaged and investors cannot directly invest in them. They do not reflect any management, custody, transaction, or other expenses, and generally assume reinvestment of dividends, income, and capital gains. Performance of indices may be more or less volatile than any investment strategy.

All investments involve risk, including loss of principal. Diversification cannot assure a profit or protect against loss. No investment or risk management strategy can guarantee positive results or risk elimination in any market. Fixed income investments have varying degrees of credit risk, interest rate risk, default risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer-term securities. Income from municipal bonds can be declared taxable because of unfavorable changes in tax laws, adverse interpretations by the IRS or state tax authorities, or noncompliant conduct of a bond issuer.

Equity investments are volatile and can decline significantly in response to investor reception of the issuer, market, economic, industry, political, regulatory, or other conditions.

Separate accounts may not be suitable for all investors.

Breckinridge believes the data provided by unaffiliated third parties to be reliable, but investors should conduct their own independent verification prior to use. Some economic and market conditions contained herein have been obtained from published sources and/or prepared by third parties, and in certain cases have not been updated through the date hereof. All information contained herein is subject to revision.

Certain third parties require us to include the following language when using their information:

BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg does not approve or endorse this material or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

The S&P500 Index (“Index”) and associated data is a product of S&P Dow Jones Indices LLC, its affiliates and/or their licensors and has been licensed for use by Breckinridge. ©2024 S&P Dow Jones Indices LLC, its affiliates and/or their licensors. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. For more information on any of S&P Dow Jones Indices LLC’s indices please visit www.spdji.com. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC (“SPFS”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). Neither S&P Dow Jones Indices LLC, SPFS, Dow Jones, their affiliates nor their licensors (“S&P DJI”) make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and S&P DJI shall have no liability for any errors, omissions, or interruptions of any index or the data included therein.