Week Ending: May 29, 2026

Gadget Gouging

Core Personal Consumption Expenditures (PCE) inflation rose 3.3% year-over-year as of April 2026, versus 2.8% in October 2025. What drove the acceleration? Breaking core inflation into its largest constituents—goods, nonhousing services, and housing—shows that almost all the increase in inflation over the last six months is attributable to goods. Tariffs? Oil? No: “Computer Software and Accessories.” In fact, although it accounts for just 5% of the core goods index, Computer Software and Accessories accounted for 60% of core goods inflation in the last six months after registering its largest price increases ever. The price spike reflects an extreme supply-demand mismatch amid surging need for AI and compute capacity. While surprising in the short run, whether such increases keep overall core PCE elevated depends on the more significant component of PCE inflation: services. Time will tell, but cooling income growth could constrain consumer spending power. Put another way: if your income isn’t keeping up with tech prices, you may have to choose between buying gadgets and dining out, which keeps overall price increases in check.

Highlights of the Week:

High Yield: BB-rated corporate spreads closed at 160 basis points on Thursday. While this level is close to the tightest levels we saw early last year, it reflects reasonable compensation for strong credit fundamentals, persistent technical demand, and a favorable supply dynamic. The all-in yield of nearly 6% for BB-rated corporates remains attractive on an absolute basis.

Corporates: Investment-grade corporates had another busy week, with $39 billion in new-issue supply, exceeding dealer expectations and bringing year-to-date totals to $995 billion. Despite the heavy supply, spreads remained flat on the week at an option-adjusted spread of 72 basis points.

Municipals: LSEG Lipper reported $2.3 billion of inflows into weekly reporting municipal (muni) bond funds for the week ending May 27th, the second-largest weekly inflow on record and roughly 2.1 times the 25-week average. ETFs drove the flows, contributing $1.7 billion, while open-end funds added $671 million. Muni funds have now posted inflows in 25 of the last 27 weeks, with year-to-date inflows reaching $39.8 billion, the second-highest level on record for the comparable period, behind only 2021.

Equities: The U.S. equity market posted positive returns for the week, supported by optimism about easing geopolitical tensions and stronger-than-expected corporate earnings. Sector performance was mixed, with technology, materials, and consumer discretionary leading the gains, while energy, consumer staples, and utilities were the worst performers.

Securitized Products: Inflation concerns, driven by higher energy costs, have led mortgage rates to climb to 6.50%, the highest level since August 2025. Refinance activity has fallen to a ten-month low, and home sales remain depressed due to poor affordability. Mortgage prepayments have declined after peaking earlier this year when borrowing costs fell to 6%. While easing tensions in the Middle East could lead to lower interest rates, a slower refinance environment is constructive for higher-coupon agency mortgage-backed security (MBS) pools.