Week Ending: June 26, 2026
Meet Me In The Middle
Data released this week showed headline Personal Consumption Expenditures (PCE) inflation jumped 0.4% in May. Excluding food and energy, core PCE rose 3.4% year-over-year. But is core the right measure? Historically, food and energy were the noisiest components, so excluding them made sense. Yet other categories can be just as volatile. For example, computer software surged earlier in the year, while financial and telecommunication services jumped in May. A better approach trims large monthly moves across all components, not just food and energy. In fact, the Dallas Fed’s trimmed-mean PCE registered 2.4% in May, much more moderate than core. That said, the Dallas Fed trims inflation asymmetrically and may understate true inflation pressures. To offset, we constructed a symmetric trim, which still shows lower pressure than the core. The bottom line: true inflation likely lies between the core and trimmed-mean measures. It’s probably not as worrisome as headlines suggest, but not as benign as asymmetric trimmed-mean implies.
Highlights of the Week:
High Yield: The yield on high-yield bonds comprises two components – rates and spreads. With rates at historically elevated levels, high-yield investors might expect that a significant share of their yield comes from rates, but as of yesterday’s close, spreads accounted for 39% of their yield. Since yields are highly correlated with subsequent returns, we expect the spread component of yields to remain an important driver of future returns.
Corporates: This week saw $52 billion in primary issuance, headlined by SpaceX’s inaugural $25 billion bond deal, which tied for the 9th-largest investment-grade (IG) deal ever. While underlying Treasury yields fell, IG spreads widened 2 basis points (bps) to an option-adjusted spread of 75 bps as of Thursday’s close.
Municipals: Municipal bond funds recorded $633 million in inflows, extending the positive streak to 10 consecutive weeks. Flows favored ETFs, investment-grade funds, and shorter-duration strategies. Year-to-date inflows now total $50 billion, the second-highest on record.
Equities: The U.S. equity market ended the week lower, pressured by a broadening AI-driven rotation that weighed on semiconductor and mega-cap technology stocks, even as defensive and cyclical areas found support. From a sector perspective, health care, utilities, and real estate were the best performers, while communications, technology, and consumer discretionary were the worst performers.
Securitized Products: The collateralized loan obligation (CLO) market has been active this month, with robust primary issuance continuing to drive technicals across the capital structure. Demand has been well supported by real-money accounts across senior and investment-grade tranches, while junior mezzanine and equity tranches have seen more two-way flow as investors weigh attractive entry points against macro uncertainty and broader credit dispersion in the underlying loan market. CLOs offer investors seeking floating-rate exposure yields of ~5% on AAA-rated tranches and ~6% on BBB-rated tranches.
