Week Ending: July 31, 2026
Style Over Substance
While the Fed held rates steady at its July FOMC meeting this week, 30-year Treasury yields recorded their largest one-day jump in over a year after the post-meeting press conference. What gives? For a Fed Chair supposedly moving away from forward guidance, Chair Warsh used as many words at the press conference as his predecessors. However, Warsh’s comments pertained more to the Fed’s process rather than the substance of economic data. While he peppered his remarks with references to the committee’s commitment to achieve price stability, he did little to justify why the Fed stayed on hold and even admitted that the softer-than-expected June CPI was not one of the reasons. With unemployment near 4% and inflation hovering above 3%, can the Fed talk its way to price stability? Or, should the Fed be more patient and wait for more data? After 5 years of missing its inflation target, we expect the Fed to act soon. In the meantime, let’s hope markets have not run out of patience.
Highlights of the Week:
High Yield: Despite heightened equity market volatility over the past two months, the high yield market has remained relatively resilient. Since mid-April, high yield spreads have traded within a narrow 25 basis point range, reflecting remarkably low spread volatility and underscoring the asset class’s strong underlying fundamentals. That said, experience shows that market conditions can change quickly, making active management critical for identifying opportunities and managing risk.
Corporates: While Treasury yields spiked after this week’s Fed meeting, investment-grade corporate spreads remained steady at an option-adjusted spread of 79 basis points, bringing all-in corporate yields to 5.43% as of Thursday’s close. On the new issue front, July ended with $141 billion, the largest July on record, bringing the year-to-date total to $1.33 trillion.
Municipals: For the week ending July 29, LSEG Lipper reported $761 million of inflows into weekly reporting municipal bond funds, extending the inflow streak to 15 consecutive weeks and rebounding from the prior week's modest gain, though still below the 25-week average. Exchange-traded funds (ETFs) continued to drive demand (+$901 million), while open-end funds recorded another week of outflows (-$140 million). Year-to-date municipal fund inflows now total $59.1 billion, the second-highest pace on record for this point in the year.
Equities: The U.S. equity market ended the week modestly higher after an eventful stretch dominated by corporate earnings reports and the Fed meeting. Sector performance was mixed, with consumer discretionary, communications, and consumer staples among the best performers, while utilities, real estate, and materials lagged the market.
Securitized Products: Housing market fundamentals remain generally constructive for residential credit. Although sales remain depressed, national inventory is still limited enough to keep home prices flat. Stable collateral values and a resilient labor market should support mortgage performance.
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.
