U.S. Treasury yields rose again amid hawkish rhetoric from U.S. Federal Reserve officials and continued strong U.S. economic data.

U.S. yields began the year at their highest starting level since 2011, and they have since risen further across the Treasury and municipal curves.

We saw 2024 as a year of two stories. First, cooling inflation and solid corporate earnings would support upbeat risk appetite.

U.S. Treasury yields rose again last week after U.S. inflation data surprised to the upside, sparking a reassessment of near-term U.S. Federal Reserve rate cuts. The market is now pricing only 1.8 total cuts this year.

First-quarter earnings season has kicked off with the utilities and communication services sectors projected to deliver the strongest year-over-year EPS growth, while estimates for materials and energy are expected to decline the most. 

Solid U.S. economic and corporate earnings growth have supported risk appetite, driving stocks to all-time highs – even as bond yields have jumped. We think earnings will need to deliver on high expectations, especially after last week’s data showing sticky inflation spooked investors.

U.S. Treasury yields rose on strong U.S. economic data, and spread sectors generally outperformed. The overall solid data further reduced expectations for near-term U.S. Federal Reserve easing, though markets still price the first rate cut for June.

Investors looking to lock in attractive yields ahead of eventual rate cuts while also positioning their portfolios to benefit when those cuts occur have expressed growing interest in how best to blend taxable and municipal fixed income assets to pursue these goals.