- Equity prices and credit spreads experienced heightened volatility and selloffs early in the month due to increased concerns around labor data, but quickly stabilized as other economic indicators highlighted continued resilience in the economy
- July’s change in nonfarm payrolls report took center stage in the first week of August as it came in significantly below expectations, and the outsized downward revision of prior months’ reports did little to ease investor concerns
- CPI rose at a year-over-year pace of 2.9% in July, while core PCE, the Federal Reserve’s (Fed) preferred inflation measure, posted a modest increase of 2.6%
- At the annual Jackson Hole economic symposium, Fed Chair Jerome Powell signaled a likely rate cut in September, highlighting increasing weakness in the labor market, as well as progress made on taming inflation
- Treasury yields fell across the curve with the most significant declines in the front end; the 1- and 2-year Treasury rates dropped by 34bps to 4.41% and 3.92%, respectively, while the 30-year rate dropped by 11bps to 4.20%
- The 2-year/10-year inversion ended the month at -2bps, its steepest point since July 2022
- Declining yields along with expectations of easing monetary policy were catalysts for primary markets as over $108 billion of new investment-grade deals and $18 billion of high-yield deals priced during the month; the high-yield new issue market experienced its busiest August since 2021
- Investment-grade spreads widened by 18bps to 111bps in the first week of the month before tightening back to 93bps while, yields fell by 20bps to 4.94%
- High-yield spreads peaked at 381bps before ending August 9bps tighter month-over-month at 305bps; yields dropped by 29bps to 7.30%, the lowest level in 26 months
- Agency mortgage-backed securities (MBS) added 35bps of excess returns during the month, marking the best August for the sector since 2003; MBS spreads tightened 5bps to 39bps, slightly above its 10-year average
- Municipal bond supply surged in August, with nearly $50 billion priced as issuers rushed to market ahead of the upcoming election season and municipal funds saw heavy inflows during the month
Treasury Yield Curve
MTD Returns
