Monthly Fixed Income Market Update: July 2026

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MARKET NEWS

 

  • In July, investor sentiment weakened as concerns surrounding AI-driven growth and capital spending weighed on credit markets, while geopolitical developments and shifting monetary policy expectations fueled broader market volatility
  • Labor market momentum cooled modestly, with June payroll growth slowing to 57k and prior months revised lower, though the unemployment rate fell to 4.2%
  • Inflation moderated during the month, with headline CPI declining 0.4%, its first monthly decline since 2020; Core PCE rose just 0.1%, below expectations of 0.2%
    • Despite improving monthly inflation readings, year-over-year headline CPI and Core PCE remained elevated at 3.5% and 3.3%, respectively, influencing monetary policy expectations
  • The Federal Reserve maintained its policy rate at 3.50%-3.75%, although three Committee dissents signaled a hawkish bias and left the door open to future rate hikes, even as forward guidance remained limited
  • Treasury yields were volatile as investors weighed shifting energy prices, moderating inflation data, and evolving Fed expectations; the yield curve steepened, with rates across the curve reaching new year-to-date highs
  • Investment-grade (IG) corporate spreads widened by 4bps to 78bps and high-yield (HY) spreads widened by 9bps to 279bps as renewed volatility in technology-related issuers and concerns over AI-driven capital spending intensified
    • Basic Industry and Finance Companies were among the strongest-performing sectors, while Technology and Communications lagged
  • IG issuance was robust, led by sizable Financial and Technology deals, with July supply totaling $140 billion versus $100 billion expected, a new monthly record
    • New issue concessions have averaged 3.7bps in 2026, compared to 3.3bps in 2025
  • HY issuance remained healthy at approximately $16 billion, underscoring continued market access for below-IG borrowers despite periods of geopolitical and market volatility
  • Agency mortgage-backed securities (MBS) underperformed other securitized sectors, pressured by rate volatility and rising mortgage rates; MBS spreads widened 7bps to 31bps, while the 30-year mortgage rate rose to 6.73%
  • Municipal bonds generally underperformed Treasuries, with most muni/Treasury ratios increasing, despite continued strong investor demand

 

MARKET STATISTICS

 

 

 

 

As of 7/31/26. Sources: Bloomberg

Excess returns are the curve-adjusted excess return of a given index relative to a term structure-matched position in Treasuries. This is not a recommendation to purchase or sell the securities mentioned above.

The views contained in this report are those of Income Research + Management (“IR+M”) and are based on information obtained by IR+M from sources that are believed to be reliable but IR+M makes no guarantee as to the accuracy or completeness of the underlying third-party data used to form IR+M’s views and opinions. This report is for informational purposes only and is not intended to provide specific advice, recommendations, or projected returns for any particular IR+M product. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Income Research + Management. “Bloomberg®” and Bloomberg Indices are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the index (collectively, “Bloomberg”) and have been licensed for use for certain purposes by IR+M. Bloomberg is not affiliated with IR+M, and Bloomberg does not approve, endorse, review, or recommend the products described herein. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to any IR+M product.

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As of 6/30/26 unless otherwise stated.
@ 2026 Income Research + Management. All Rights Reserved.
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