Week Ending: April 24, 2026

Subtle Shift

In January, Federal Reserve Governor Christopher Waller characterized the labor market as weak and fragile, advocating rate cuts. But last Friday, Waller said he would support a near-term policy rate hold. So, what’s changed? Not geopolitics. Instead, Waller highlighted that slower immigration and an aging population kept the labor force flat in 2025, a structural trend that will likely carry into 2026 and beyond. Near-zero labor force growth suggests the monthly pace of job growth required to keep the unemployment rate steady, also known as the “breakeven” pace, would also be near zero. In turn, the recent pattern of monthly job growth shifting between gains and losses may reflect a new “normal” rather than signaling meaningful labor market weakness. Of course, like Governor Waller, we are still worried about downside risks to the labor market, as the hiring rate and job-finding rate for unemployed workers have continued to fall. Nonetheless, while a lower breakeven reflects a subtle shift in views, it still suggests that Fed policymakers are likely to remain on hold—at least for now.

Highlights of the Week:

High Yield: Private credit has recently attracted heightened scrutiny amid concerns about potential AI-driven disintermediation and its relatively high, 30%, exposure to the technology sector. While the high yield market is not immune to these risks, its exposure is significantly lower at 5%, and offers greater flexibility, as managers can actively exit positions with elevated risk.

Corporates: Investment-grade corporate spreads are now flat on the year, closing yesterday at 78 basis points (bps) after hitting year-to-date wides of 93 bps in mid-March. All-in yields remain elevated at 5.05%, 24 bps wider this year due to a rise in Treasury yields.

Municipals: For the week ending April 22nd, municipal bond funds recorded a $1 billion inflow rebound, led by ETFs, which accounted for most inflows and fully offset prior tax-related outflows. Demand was concentrated in investment-grade and longer-duration funds. The demand underscores continued strength in the asset class, with inflows in 20 of the last 22 weeks and year-to-date flows reaching $28.8 billion, the second-highest on record, suggesting momentum could persist if rate conditions remain supportive.

Equities: The U.S. equity market posted positive returns for a fourth consecutive week, supported by better-than-expected corporate earnings and the continued easing of geopolitical tensions. Sector performance was mixed, with technology, energy, and consumer staples the best performers, while health care, financials, and real estate underperformed.

Securitized Products: The ABS primary market continues to demonstrate remarkable depth and adaptability, with inaugural cell tower pricing and several consumer deals bringing year-to-date supply to $118 billion. Supply is outpacing last year's record pace, indicating that investor appetite is broadening across a wider range of collateral types. Against this backdrop of strong technicals, the ongoing Iran conflict remains the key macro overhang; however, underlying fundamentals in consumer health are holding up thus far.