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Key takeaways
- The 30-year Treasury yield held near multi-decade highs on fiscal deficit concerns, heavy corporate supply and persistent inflation.
- Treasury's surprise buyback expansion briefly rallied markets, but skepticism about sustainability pushed yields back up by Thursday.
- Record IG issuance and collapsed US-Canada trade talks add uncertainty, with markets watching Jackson Hole for Fed signals.
Market recap
Fiscal deficit concerns, heavy AI-related corporate supply and sticky inflation kept the 30-year Treasury yield near multi-decade highs. Treasury Secretary Bessent’s surprise announcement midweek to double buyback operations for 10-to-30-year securities sparked a brief rally, but skepticism about its staying power pushed yields back up by Thursday.
Investment grade issuance hit a record August pace above $145 billion, and Europe saw its busiest post-summer restart on record. U.S./Canada trade talks collapsed over the weekend, with 50% tariffs now set to take effect.
Returns were negative across most sectors as rates edged higher. The Bloomberg U.S. Aggregate Bond Index returned -0.10%, investment grade corporates -0.15%, preferreds -0.20%, high yield -0.15%, emerging markets -0.25% and MBS -0.10%.
Fixed income outlook from this week’s activity
We expect the U.S. Federal Reserve to stay on hold, with its data-dependent stance intact through year-end. The collapsed US-Canada trade talks introduce fresh uncertainty for growth, and we forecast the 10-year Treasury yield ending 2026 between 4.25% and 4.50%.
Credit fundamentals remain sound even as investment grade spreads widen on heavy supply. We favor high-quality income, with spread sectors still offering attractive all-in yields at elevated levels.
Treasury’s buyback expansion signals policymaker discomfort with elevated long-end yields. With the Jackson Hole conference approaching, markets will look to Fed commentary for signals on the path forward.
Weekly fixed income performance snapshot
U.S. Treasuries
The 30-year opened at 5.31% – its highest since 2007 – before partially retracing midweek on the Treasury’s buyback announcement, then drifting back up on skepticism. The 30-year TIPS auction cleared at 2.973%, up sharply from 2.473% at the prior auction, reflecting a significant rise in real rates.
The 2-year yield rose 7 bps to 4.24%, the 5-year rose 6 bps to 4.43%, the 10-year rose 4 bps to 4.74%, the 20-year was unchanged at 5.26% and the 30-year rose 1 bp to 5.27%.
Tax-exempt municipals
Municipal bonds underperformed other fixed income sectors as rate volatility and heavy new issuance weighed on the market. Yields moved higher through Tuesday before the Treasury’s buyback announcement provided mid-week relief. August supply is tracking toward $57 billion, among the three largest months on record. Fund flows turned positive but landed below the 25-week average pace. We see the backdrop as an opportunity to lock in elevated yields at attractive valuations.
The Bloomberg Municipal Index returned -0.58%.
Taxable municipals
Taxable munis declined modestly as rate volatility and heavy issuance pressured the sector. August supply is also tracking toward $57 billion, among the three largest months on record. With reinvestment cash from maturing bonds thinning since early August, fund flows are increasingly driving market direction rather than supply alone. We see the backdrop as a potential opportunity to lock in elevated yields at favorable valuations.
The Bloomberg Municipal Taxable Index returned -0.13% with spreads at 51 bps.
Investment grade corporates
Investment grade spreads widened to 80 basis points (bps) as record August issuance tested market capacity. Issuers paid roughly 5 bps in new issue concessions on deals covered about 2x, with order book attrition elevated near 40%. Despite heavy supply, the rate backup continues to entice yield buyers at all-in levels above 5.4%.
The Bloomberg U.S. Corporate Bond Index returned -0.15% with spreads at 80 bps.
U.S. high yield corporates
High yield declined as spreads widened and the prior week’s post-CPI rally faded. Primary market issuance was limited. Mid-week Treasury volatility – particularly the failed sustainability of the buyback rally – weighed on sentiment. CCC yields reached a two-year high.
The Bloomberg High Yield 2% Issuer Capped Index returned -0.15% with spreads at 269 bps.
Preferred securities
Preferred securities declined as rising long-end rates pressured the sector’s duration-sensitive profile. Retail ($25-par, fixed-rate) preferreds have notably underperformed institutional paper year-to-date – the longest such stretch since at least 2016. Several redemptions were announced, and one bank preferred deal upsized on strong retail demand.
The ICE Preferred Index returned -0.20% with spreads at 160 bps.
Senior loans
Loans posted a positive return as the slowdown took hold ahead of the U.S. Labor Day holiday, with only modest new launch activity. Despite the quiet calendar, August logged above-average volume for the third time in four years. CLO activity remained brisk, with numerous new issues, resets and refinancings pricing. Fund inflows continued to support technicals.
The S&P Leveraged Loan Index returned +0.14% with spreads at 480 bps.
Securitized credit
Agency MBS declined modestly, with the basis tracking rate volatility – tightening mid-week on the buyback announcement before widening again. ABS issuance is running ahead of last year’s pace, though activity is slowing ahead of the typical late-August lull. CMBS remained active with conduit deals pricing. CLO ratings activity stood out, with Moody’s upgrading hundreds of tranches and placing roughly 1,000 more on review for upgrade.
The Bloomberg MBS Index returned -0.10% with spreads at 27 bps. The Bloomberg CMBS Index returned -0.11% with spreads at 65 bps. The Bloomberg ABS Index returned -0.05% with spreads at 44 bps.
Global emerging markets
EM currencies hit a record high as the U.S. dollar weakened following the Treasury’s buyback announcement. Hard currency sovereign spreads widened modestly. Argentina’s dollar bonds led EM gains late in the period on stronger-than-expected economic data. Ethiopia cleared a key hurdle in its debt restructuring, and Kazakhstan was upgraded to BBB by S&P. The collapse of U.S./Canada trade talks introduces a fresh risk for EM sentiment.
The Bloomberg Global EM Index returned -0.25% with spreads at 162 bps.
U.S. Treasury market yields
| Maturity | Yield | Week | Month-to-date | Year-to-date |
|---|---|---|---|---|
| 2-year | 4.24 | 0.07 | -0.05 | 0.76 |
| 5-year | 4.43 | 0.06 | -0.03 | 0.70 |
| 10-year | 4.74 | 0.04 | 0.00 | 0.57 |
| 30-year | 5.27 | 0.01 | 0.00 | 0.43 |
| Source: Bloomberg L.P., 21 Aug 2026. Performance data shown represents past performance and does not predict or guarantee future results. | ||||
Treasury’s surprise buyback expansion reveals policymaker discomfort with historic yields, but skepticism persists as U.S./Canada trade tensions and Jackson Hole loom.
Fixed income investment characteristics and returns
| Index | Yield to worst (%) | Spread (bps) | Effective duration (years) | Returns (%) | ||
|---|---|---|---|---|---|---|
| Week | Month-to-date | Year-to-date | ||||
| U.S. Treasury | 4.55 | - | 5.72 | -0.08 | 0.30 | -0.54 |
| U.S. government related | 4.91 | 36¹ | 5.20 | -0.16 | 0.37 | 0.09 |
| Municipal | 3.90 | - | 6.79 | -0.58 | 0.22 | 0.65 |
| High yield municipal | 5.65 | 151² | 7.38 | -0.52 | 0.37 | 2.90 |
| Taxable municipal | 5.32 | 51¹ | 7.49 | -0.13 | 0.36 | -0.15 |
| U.S. aggregate bond | 4.96 | 28¹ | 5.86 | -0.10 | 0.35 | -0.34 |
| U.S. corporate investment grade | 5.47 | 80¹ | 6.60 | -0.15 | 0.21 | -0.62 |
| High yield 2% issuer capped | 7.29 | 269¹ | 2.93 | -0.15 | 0.73 | 2.44 |
| Preferred securities | 6.57 | 160¹ | 5.54 | -0.20 | -0.13 | 0.97 |
| Senior loans³ | 8.87 | 480 | 0.25 | 0.14 | 0.65 | 2.83 |
| U.S. mortgage-backed securities | 5.25 | 27¹ | 5.70 | -0.10 | 0.59 | 0.14 |
| U.S. commercial mortgage-backed securities | 5.05 | 65¹ | 3.66 | -0.11 | 0.37 | 0.75 |
| U.S. asset-backed securities | 4.76 | 44¹ | 2.97 | -0.05 | 0.30 | 1.25 |
| Collateralized loan obligations, AA | 5.13 | 121¹ | 0.25 | 0.10 | 0.36 | 3.39 |
| Collateralized loan obligations, BB | 11.94 | 763¹ | 0.25 | 0.30 | 0.88 | 3.72 |
| Global emerging markets | 6.20 | 162¹ | 5.78 | -0.25 | 0.57 | 1.27 |
| Global aggregate (unhedged) | 4.02 | 29¹ | 6.18 | 0.18 | 0.71 | -0.04 |
| 1 Option-adjusted spread to Treasuries. 2 Yield difference between the Bloomberg High Yield Municipal Index and the 20-year AAA MMD scale. 3 Spread refers to the 3-year discount margin. Duration is estimated based on the frequency of the reset date. Source: Bloomberg L.P. and Standard & Poor’s, 21 Aug 2026. Performance data shown represents past performance and does not predict or guarantee future results. Unless otherwise noted, the index is Bloomberg. All index returns are shown in U.S. dollars. Yield to worst is the lowest potential yield that can be received on a bond without the issuer actually defaulting. Effective duration (expressed in years) measures the price sensitivity of a fixed-income investment to a change in interest rates, considering that expected cash flows will fluctuate as interest rates change. Index performance is shown for illustrative purposes only. Index returns include reinvestment of income and do not reflect investment advisory and other fees that would reduce performance in an actual client account. |
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Representative indexes: U.S. Treasury: Bloomberg U.S. Treasury Index; U.S. government related: Bloomberg U.S. Government-Related Index; municipal: Bloomberg Municipal Index; high yield municipal: Bloomberg High Yield Municipal Index; taxable municipal: Bloomberg Taxable Municipal Bond Index; U.S. aggregate bond: Bloomberg U.S. Aggregate Bond Index; U.S. corporate investment grade: Bloomberg U.S. Corporate Index; high yield 2% issuer capped: Bloomberg High Yield 2% Issuer Capped Index; preferred securities: ICE BofA U.S. All Capital Securities Index; senior loans: S&P UBS Leveraged Loan Index; U.S. mortgage-backed securities; Bloomberg U.S. Mortgage-Backed Securities Index; U.S. commercial mortgage-backed securities: Bloomberg CMBS ERISA-Eligible Index; U.S. asset-backed securities: Bloomberg Asset-Backed Securities Index; CLO AA: J.P. Morgan Collateralized Loan Obligation AA Index; CLO BB: J.P. Morgan Collateralized Loan Obligation BB Index; global emerging markets: Bloomberg Emerging Market USD Aggregate Index; global aggregate: Bloomberg Global Aggregate Unhedged Index.
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Investing involves risk; principal loss is possible. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, derivatives risk, dollar roll transaction risk and income risk. As interest rates rise, bond prices fall. Below investment grade or high yield debt securities are subject to liquidity risk and heightened credit risk. Preferred securities are subordinated to bonds and other debt instruments in a company’s capital structure and therefore are subject to greater credit risk. Foreign investments involve additional risks, including currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks may be magnified in emerging markets. Asset-backed and mortgage-backed securities are subject to additional risks such as prepayment risk, liquidity risk, default risk and adverse economic developments. The value of convertible securities may decline in response to such factors as rising interest rates and fluctuations in the market price of the underlying securities. Senior loans are subject to loan settlement risk due to the lack of established settlement standards or remedies for failure to settle. These investments are subject to credit risk and potentially limited liquidity, as well as interest rate risk, currency risk, prepayment and extension risk, and inflation risk. Any investment in collateralized loan obligations or other structured vehicles involves significant risks not associated with more conventional investment alternatives.
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