Week Ending: August 7, 2026
Running Dry
Rhine River Level at Kaub Versus Barge Freight Rates*
Sources: PJK International, German Federal Waterways and Shipping Administration, Bloomberg
*Cost of shipping gasoil (diesel + heating oil) from Rotterdam to Karlsruhe
While much of this week’s attention was on the Strait of Hormuz, Europe has its own chokepoint to deal with: the Rhine River. The river is a vital artery for commerce in Europe, connecting the ports of the Netherlands to Germany’s industrial heartland and serving as a critical waterway for diesel and heating oil. The water level at Kaub, the shallowest part of the Rhine, dropped to its lowest level this week since measurement began in 1880. Shallow water means barges (flat-bottomed boats carrying freight) can only carry 20% of their capacity to avoid running aground. As a result, barge traffic has risen, and barge costs have spiked to record highs. When Rhine water levels last dipped this low, in 2018 and 2022, barge costs skyrocketed, and higher energy costs quickly passed through into consumer prices, while German industrial output struggled. For the European Central Bank, which has recently raised rates due to the impact of the Iran war on energy prices, higher shipping costs will hamper growth and boost consumer prices, putting policymakers in an even more difficult position.
Highlights of the Week:
High Yield: We are roughly halfway through high yield earnings season, and high yield fundamentals remain resilient, with low default rates, healthy corporate balance sheets, and solid interest coverage supporting the asset class. While spreads are relatively tight by historical standards, elevated all-in yields continue to provide an attractive income cushion. Security selection is becoming increasingly important as dispersion between issuers widens.
Corporates: It was another heavy week of issuance, with $78 billion coming to market, driven by Alphabet's $25 billion 10-tranche deal. While the deal came with concessions, it pushed many existing tech names wider on the day. This is Alphabet's 7th deal of the year, across multiple currencies, totaling almost $80 billion in USD equivalent.
Municipals: Municipal bonds fell in July as higher Treasury yields and rich valuations weighed on performance. The Bloomberg Municipal Bond Index returned -1.89%, lagging both Treasuries and investment-grade corporates as crossover demand faded after June's strong rally. Despite the weakness, seasonal reinvestment demand and strong fund flows continued to provide a supportive technical backdrop.
Equities: The U.S. equity market ended the week solidly higher, posting its strongest performing week since mid-April, supported by strong corporate earnings and easing concerns about rate hikes. Sector performance was mostly positive, led by technology, materials, and consumer discretionary, while energy, utilities, and consumer staples lagged.
Securitized Products: The U.S. broadly syndicated loan (BSL) collateralized loan obligation (CLO) market remains well supported, with strong investor demand and healthy primary issuance helping keep new-issue spreads relatively contained. While underlying loan fundamentals remain broadly stable, elevated CLO supply and tighter liability spreads continue to create a more competitive environment for investors, particularly in the mezzanine tranches. Investors continue to monitor software exposure, while more AI-related debt continues to be issued in the market.
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.
