Week Ending: October 16, 2026
Shelter Shock
Consumer Price Index (CPI) Rent Of Shelter Monthly Change
Sources: Bureau of Labor Statistics
This week’s Consumer Price Index (CPI) release showed that core inflation rose 0.3% in September. Of the three major core inflation components, goods and non-housing services prices stayed sticky, while shelter picked up and accounted for half of the monthly increase. In fact, excluding the April fluke, which was distorted by missing data, rent of shelter posted its fastest monthly rise since October 2024. Private-sector rent data, such as the Zillow Rent Index, confirm the trend, with rents accelerating over the last three months. More worrisome, housing has been the only major inflation component to moderate in 2026. Also, because shelter carries more weight in core CPI than in core PCE, the Fed’s preferred inflation gauge, the moderation in shelter dragged core CPI lower and gave some investors more confidence in disinflation than core PCE suggested. In turn, a reversal in shelter inflation would push up core CPI and make matters worse for policymakers already struggling to tame core PCE inflation. At the very least, it’s far too early to declare mission accomplished, and thus far too soon to call the peak in yields.
Total Returns By Asset Class
Highlights of the Week:
High Yield: Starting yields have a strong historical correlation with long-term returns. If history is any indication, all-in yields of 8.2% may offer an attractive entry point. However, elevated dispersion at the issuer level underscores the importance of careful credit selection, as returns increasingly depend on issuer-level positioning rather than on index-level yield metrics alone.
Corporates: As volatility remains a persistent theme, investment-grade corporate issuance continues to underwhelm. Despite a rare Friday deal, this week’s issuance volume of approximately $25 billion is set to fall short of expectations, marking the third consecutive week of disappointing supply.
Municipals: Municipal funds received $1.6 billion in inflows for the week ended October 14, as record ETF inflows of $5.0 billion offset $3.4 billion in open-end outflows amid continued tax-loss harvesting. Year-to-date inflows reached $75.7 billion, the second-highest on record for the comparable period.
Equities: Weakness in mega-cap tech and AI-related stocks pushed U.S. equities lower this week amid concerns over sustaining earnings growth and the timeline for realizing returns on significant AI investments. From a sector perspective, technology, consumer discretionary, and industrials lagged, while defensive sectors such as consumer staples and health care led, along with energy.
Securitized Products: Despite healthy fundamentals, technical factors dominated ABS trading this week, with selling concentrated in AAA tranches and spreads modestly wider. Primary issuance reached its highest weekly deal count of the year, with over 24 transactions pricing, lifting secondary volumes as investors made room for new supply. Some investors also rotated into RMBS and CMBS, which have sold off amid the recent rate move.
Disclosure: This material reflects the firm’s current opinion and is subject to change without notice. Sources for the material contained herein are deemed reliable but cannot be guaranteed.
