Recent US regional banking stress further reduced market expectations for rate hikes, though this has partially reversed some in recent weeks.

Investor demand for higher yields remains robust, especially when compared to the last decade. Year-to-date, the Bloomberg US Aggregate Index and the Bloomberg US Corporate Bond Index have each risen by roughly 1.5%, driven largely by interest carry. Recent optimism in late May over the debt ceiling and more optimistic economic data brought yields back to roughly the same yields as the beginning of the year, offering investors a chance to own bonds at these more favorable higher yield levels. This price action evidenced Treasuries fulfilling their traditional role as a general “flight to quality” asset, most likely due to heightened fears during the US regional banking crisis.

The 2-year Treasury yield and 10-year Treasury yield are roughly the same from the start of the year through May 26th, though yields dipped significantly for a period in the early spring.

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