Week Ending: July 17, 2026
Soft Streak
Data released this week showed that the U.S. Consumer Price Index (CPI) excluding food and energy (the so-called “core” measure) was flat over the month of June, suggesting that the Fed’s preferred inflation gauge, core PCE, is also tracking soft. Is the inflation problem behind us? We hope so, but there are a few reasons to remain cautious. First, while inputs from CPI feed into PCE, the two measures have diverged of late. Second, a lot went right in June CPI, with almost every category surprisingly soft, suggesting June may have been a fluke. Third, we think policymakers will want to see “a string of soft prints” to confirm progress toward 2% and be comfortable with staying on hold. Meanwhile, the bar to a hike is much lower, as policymakers seem ready to pull the trigger if we see another “hot” inflation report. But a stretch of five or more consecutive monthly core PCE prints below 0.25% has occurred only three times since 2020: once in early 2020, before inflation accelerated; once in the second half of 2024; and once in the second half of 2025. So, recording another soft inflation streak is possible, but would you bet on it? More importantly, will policymakers?
Highlights of the Week:
High Yield: High yield bonds continue to demonstrate that income can be a powerful cushion even as spreads remain near the tighter end of their historical range. While investors debate whether valuations have become rich, today's elevated all-in yields mean the market can still deliver attractive returns without requiring further spread tightening. In other words, coupons, rather than capital appreciation, are increasingly doing the heavy lifting.
Corporates: While investment-grade corporate spreads remain unchanged this week at an option-adjusted spread of +76 basis points (bps), the asset class has come under pressure, particularly in the technology sector, as AI concerns continue to drive market sentiment. Technology is currently 4 bps wider on the month, while the broader corporate index is just 2 bps wider.
Municipals: Municipal funds recorded $1.4 billion in inflows for the week ended July 15, marking the 13th consecutive week of positive flows and bringing year-to-date inflows to $58 billion, the second-highest pace on record. ETFs modestly outpaced open-end mutual funds ($743 million vs. $617 million), while intermediate- and long-term funds attracted the strongest inflows, reinforcing strong technical support for the market.
Equities: U.S. equities declined for the week as AI-related stocks continued to retrace a portion of their year-to-date gains. Sector performance remained highly bifurcated, with Technology and Communication Services each down more than 2%, while Energy, Real Estate, and Consumer Staples each advanced more than 2%.
Securitized Products: In European collateralized loan obligations (CLOs), investor demand continues to outpace supply, particularly for higher-quality, shorter-dated securities. This has supported pricing and reflects ongoing confidence in the asset class despite recent market fluctuations. Primary issuance remained healthy, with a strong pipeline of new deals coming to market. New transactions were well received, indicating that investor appetite for new issuance remains robust.
*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. *
