Key takeaways
- The 10-year Treasury yield rose 8 bps to 4.56% as rates bear steepened across the curve in a quiet week.
- Fixed income spreads widened modestly, though credit volatility remained contained and investment grade fund inflows stayed above the four-week average.
- CPI, PPI, retail sales and bank earnings headline the week, with inflation data likely to shape the rate outlook.
Market recap
Markets proved resilient despite President Trump characterizing the U.S./Iran détente as essentially failed. Oil prices rose modestly while broader risk assets reflected stability, with realized credit volatility pricing below implied levels. Treasury yields bear steepened, with the curve rising 4-7 basis points (bps) led by intermediate maturities. A relatively quiet economic calendar kept attention focused on positioning ahead of the upcoming inflation data.
With rates higher across the curve, returns were negative for most fixed income sectors. The Bloomberg U.S. Aggregate Bond Index returned -0.44%, investment grade corporates returned -0.60% and preferreds -0.13%. High yield edged higher, returning +0.02%, while emerging markets returned -0.20% and MBS returned -0.47%. Rate markets remain very sensitive to geopolitical headlines, even when the ultimate market impact proves limited.
Outlook
We continue to expect rates to trade in a range as markets balance renewed geopolitical uncertainty against persistent inflation concerns. The U.S. Federal Reserve remains data-dependent, and next week’s CPI and PPI data will be critical in shaping the path forward. We forecast a range of 4.25%–4.50% for the 10-year U.S. Treasury yield at year-end 2026.
Credit fundamentals remain broadly supportive, though bear steepening and widening new issue concessions demonstrate that markets are not immune to supply fatigue. Investment grade issuance continues at a record-breaking pace, with demand still present but increasingly selective. We favor carrying high-quality income through the summer, with spread sectors offering attractive yields despite compressed risk premiums relative to historical averages.
Weekly fixed income snapshot
U.S. Treasuries
Yields finished the week marginally higher in a bear steepening move. Rate volatility rose modestly as markets positioned ahead of next week’s CPI. Current yield levels remain well above their 10- and 20-year historical averages.
The 2-year Treasury yield rose 7 bps to 4.21%, the 5-year rose 8 bps to 4.31%, the 10-year rose 8 bps to 4.56%, the 20-year rose 8 bps to 5.07%, and the 30-year rose 8 bps to 5.06%.
Tax-exempt municipals
Municipals slipped but roughly kept pace with Treasuries as renewed U.S./Iran tensions weighed on markets. Longer-dated bonds lagged as 10- and 30-year AAA rates rose 7 bps, and heavier supply caused some deals to struggle and reprice wider — a shift from the strong demand long bonds have enjoyed for most of the year. New issuance neared $11 billion. Fund flows remained robust at $1.38 billion with demand more evenly distributed across the maturity spectrum. We continue to favor longer duration in municipals over Treasuries, as attractive income levels offer a compelling opportunity even if near-term headlines stir volatility.
The Bloomberg Municipal Index returned -0.32%.
Taxable municipals
Taxable munis declined as the rates backup weighed on the sector’s longer-duration profile. Year-to-date performance remains solid and crossover demand continues, though the bear-steepening pressured total returns more than tax-exempt counterparts.
The Bloomberg Municipal Taxable Index returned -0.47% with spreads at 51 bps.
Investment grade corporates
IG spreads drifted wider, dragged by underperformance in the hyperscaler sector which widened meaningfully. Away from tech, the market was relatively stable. Supply easily eclipsed expectations at $53 billion, and new issue concessions are rising — a signal that the market’s capacity to absorb record issuance is being tested. Looking ahead, supply is expected around $40 billion this week as banks report earnings.
The Bloomberg U.S. Corporate Bond Index returned -0.60% with spreads at 76 bps.
U.S. high yield corporates
High yield was mixed, with the tone shifting from firm early on to softer mid-week before recovering into Thursday’s close. Beta names underperformed due to moves in oil prices and rates, while higher-quality cash held up better. Primary market activity was modest with new issue supply below estimates. Fund flows were modestly positive.
The Bloomberg High Yield 2% Issuer Capped Index returned +0.02% with spreads at 263 bps.
Preferred securities
Preferred securities declined modestly as rising rates weighed on the sector’s longer duration. Volumes were elevated early in the week before moderating. Tuesday proved the most volatile day with spread-sensitive selling pressuring the complex before a stabilizing Treasury auction helped the market recover. Spreads remained tighter despite the rate backup. Geopolitical headlines added a cautionary tone in the back half of the week.
The ICE Preferred Index returned -0.13% with spreads at 150 bps.
Senior loans
The loan market had a constructive week characterized by a persistently firm tone and better buyers throughout. Technicals continued to set the tone, with CLO and bank demand providing underlying support. Higher coupon and higher spread paper outperformed, while tighter-spread names lagged. Software was a notable outperformer mid-week, and insurance brokers improved steadily as the week progressed. New issue volume reached $6.8 billion.
The S&P Leveraged Loan Index returned +0.34% with spreads at 491 bps.
Securitized credit
MBS outperformed Treasury rates, which sold off throughout the week. Primary issuance picked up after the July 4th lull with multiple deals in non-QM and prime jumbo tightening with heavy subscriptions. ABS saw strong bid depth with the credit curve flattening, even as accounts increased secondary selling to make way for a heavy new issue pipeline. CMBS secondary flows remain light with spreads widening broadly — the bear-flattener in rates has caused investors to focus more on the long end.
The Bloomberg MBS Index returned -0.47% with spreads at 26 bps. The Bloomberg CMBS Index returned -0.23% with spreads at 66 bps. The Bloomberg ABS Index returned -0.11% with spreads at 43 bps.
Global emerging markets
EM hard currency sovereigns tightened 1 bp with performance even across investment grade and high yield. EM corporates outperformed slightly with spreads tightening 4 bps. Local markets returned -0.06% hedged (-0.23% unhedged) with select emerging markets currencies weighing on the space. Retail inflows rose sharply to +$715 million from -$67 million, with hard currency accelerating to +$486 million and local currency to +$229 million. Inflows stand at $28.4 billion year-to-date. New issuance picked up with $12.5 billion coming to market; demand was average at 3.1x oversubscribed.
The Bloomberg Global EM Index returned -0.20% with spreads at 160 bps.
U.S. Treasury market yields
| Maturity | Yield | Week | Month-to-date | Year-to-date |
|---|---|---|---|---|
| 2-year | 4.21 | 0.07 | 0.03 | 0.73 |
| 5-year | 4.31 | 0.08 | 0.08 | 0.58 |
| 10-year | 4.56 | 0.08 | 0.10 | 0.39 |
| 30-year | 5.06 | 0.08 | 0.11 | 0.22 |
| Source: Bloomberg L.P., 10 Jul 2026. Performance data shown represents past performance and does not predict or guarantee future results. | ||||
Bear steepening pressured rates, and record investment grade supply tested market appetite, yet fund inflows held firm ahead of critical inflation data.
Fixed income characteristics and returns
| Index | Yield to worst (%) | Spread (bps) | Effective duration (years) | Returns (%) | ||
|---|---|---|---|---|---|---|
| Week | Month-to-date | Year-to-date | ||||
| U.S. Treasury | 4.46 | - | 5.81 | -0.37 | -0.52 | -0.24 |
| U.S. government related | 4.81 | 35¹ | 5.28 | -0.30 | -0.43 | 0.33 |
| Municipal | 3.65 | - | 6.56 | -0.32 | -0.40 | 1.91 |
| High yield municipal | 5.49 | 166² | 7.18 | -0.35 | -0.40 | 3.67 |
| Taxable municipal | 5.18 | 51¹ | 7.53 | -0.47 | -0.68 | 0.48 |
| U.S. aggregate bond | 4.84 | 27¹ | 5.91 | -0.44 | -0.58 | 0.04 |
| U.S. corporate investment grade | 5.32 | 76¹ | 6.73 | -0.60 | -0.76 | 0.08 |
| High yield 2% issuer capped | 7.16 | 263¹ | 2.93 | 0.02 | 0.11 | 2.07 |
| Preferred securities | 6.33 | 150¹ | 5.57 | -0.13 | 0.05 | 1.64 |
| Senior loans³ | 8.96 | 491 | 0.25 | 0.34 | 0.48 | 1.85 |
| U.S. mortgage-backed securities | 5.10 | 26¹ | 5.56 | -0.47 | -0.56 | 0.42 |
| U.S. commercial mortgage-backed securities | 4.97 | 66¹ | 3.72 | -0.23 | -0.23 | 0.53 |
| U.S. asset-backed securities | 4.71 | 43¹ | 2.84 | -0.11 | -0.09 | 0.97 |
| Collateralized loan obligations, AA | 5.28 | 136¹ | 0.25 | 0.11 | 0.14 | 2.74 |
| Collateralized loan obligations, BB | 11.97 | 776¹ | 0.25 | 0.01 | 0.14 | 1.94 |
| Global emerging markets | 6.10 | 160¹ | 5.89 | -0.20 | -0.34 | 1.67 |
| Global aggregate (unhedged) | 3.89 | 27¹ | 6.25 | -0.40 | -0.47 | -0.69 |
| 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, 10 Jul 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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