Week Ending: November 13, 2026
Easy Call
Consecutive Months Of Above-Target Inflation And Low Unemployment*
Sources: Bureau of Labor Statistics, Congressional Budget Office (CBO), Payden Calculations
*Three-month moving average of CPI above 2% year-over-year and unemployment rate at or below NAIRU, the non-accelerating inflation rate of unemployment, or the full-employment level consistent with stable inflation
This week, a flurry of Fed speakers delivered a near-unanimous message: more tightening is coming, and the pace may be faster than markets expect. While most policymakers supported a rate hold in October, data since then suggest inflation is stickier than expected, and the Fed may already be behind the curve. Governor Waller flagged the possibility of a 50-basis-point (bps) hike in December, as hiking only 25 bps may put the Fed’s credibility at risk. Dallas Fed President Logan is also worried that policy is not restrictive at all and is adding to inflationary pressures. Indeed, the data explain policymakers’ sudden angst: the three-month moving average of year-over-year CPI has been above 2% and the unemployment rate below its full-employment level for 60 consecutive months as of October, the second-longest such stretch on record. The longest stretch ran from February 1966 to August 1971, a period that preceded nearly 800 bps of rate increases. Today is not a repeat of 1970s runaway inflation, but five years of above-target inflation is wearing down policymakers’ patience and credibility. The risk isn’t just one 50-basis-point hike in December; it’s that the Fed has to deliver more total tightening than markets have priced in.
Total Returns By Asset Class
Highlights of the Week:
High Yield: It’s been a volatile month for equities, but less so for high yield. Through November 5, the S&P 500 was down 3.0%, compared with a 0.4% gain for the high-yield index. After a modest recovery in stock prices, high yield is still outperforming, returning 0.3% month-to-date as of Thursday’s close, compared with 0.2% for stocks. These markets underscore high yield’s role as a volatility-dampener in a well-diversified portfolio.
Corporates: Corporate spreads saw some relief this week, tightening 5 basis points (bps) to an option-adjusted spread of 86 bps. Despite tighter spreads, all-in yields have risen 0.23% to 5.98% and are now hovering near the year-to-date high of 6.05% set in early October.
Municipals: Municipal bonds continued to benefit from improving technical conditions, with the municipal index up about 5% since the end of September as valuations became increasingly rich. However, LSEG reported $176 million in fund outflows, the first in six weeks. Exchange-traded funds (ETFs) attracted $1.3 billion, while open-end funds lost $1.4 billion, marking the tenth consecutive week of divergent flows amid tax-loss harvesting. Manageable issuance and reinvestment demand should provide additional support for municipal bonds.
Equities: The U.S. equity market staged a broad-based rebound this week after several weeks of elevated volatility, underscoring the market’s resilience and a generally supportive fundamental backdrop. Meanwhile, heightened scrutiny of leading technology firm NVIDIA added to market uncertainty. All sectors posted positive returns, with energy, industrials, and communications leading the advance, while materials, real estate, and technology lagged.
Securitized Products: Mortgage rates jumping above 7% have combined with seasonal factors to further depress housing market activity. Existing home sales in October reached their lowest single-month level since 2010. With the entire agency mortgage-backed securities market trading at a discount, slow prepayment speeds incentivize the search for extension protection. Geographic stories (such as Florida), where housing turnover is faster, are more attractive in such an environment.
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.
