July was characterized by persistent higher-for-longer interest rate expectations, resilient economic activity, and elevated capital markets issuance. Economic data continued to demonstrate underlying strength despite ongoing geopolitical tensions and elevated energy prices. Inflation remained above the Federal Reserve's (Fed's) target, supported in part by continued investment in artificial intelligence (AI) infrastructure, while labor market conditions stayed firm.
Against this backdrop, the Fed held policy rates unchanged at its July meeting. Continued dissents in favor of tighter policy, along with Federal Open Market Committee (FOMC) Chairman Warsh’s "less is more" communication approach, reinforced uncertainty around the future path of monetary policy. U.S. Treasury yields moved higher during the month with longer-dated maturities underperforming their shorter-dated counterparts as the yield curve steepened.
Credit markets remained active as investment-grade corporate issuance reached a record level for the month of July. While overall demand remained healthy, the surge in supply created pockets of weakness within technology-related issuers where risk premiums widened modestly amid continued financing needs for AI-infrastructure investment. Outside of these sectors, corporate and securitized markets remained broadly resilient, supported by solid fundamentals and continued demand for high-quality income-producing assets.
The Secured Overnight Financing Rate (SOFR) – a measure of the overnight secured borrowing rate in the U.S. – ended the month at 3.66%. At month-end, the 3-month term SOFR rate was 3.75%, and the 3-month U.S. Treasury bill closed at 3.76%.
