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Key takeaways
- A blowout May jobs report sent Treasury yields sharply higher Friday, with the 10-year climbing back above 4.50%.
- Markets now fully price a Fed rate hike by December, due to sticky inflation and a resilient labor market.
- Despite the rate shock, credit spreads held firm, reflecting resilient technicals and steady investor demand across fixed income markets.
Market recap
Global markets gave back gains this week following a constructive prior week. Treasuries traded in a narrow range until Friday, when a much stronger-than-expected nonfarm payrolls report triggered a sharp selloff. The curve bear-flattened as traders moved to fully price a rate hike by December. The 2-year yield closed at 4.16%, up from 4.0% the prior Friday, while the 10-year moved back above 4.50%. The S&P 500 fell sharply on Friday to finish the week down roughly 2.5%, despite having touched a new all-time high on Tuesday. WTI crude oil edged higher, gaining 3%.
With the selloff concentrated on Friday, returns were negative across most fixed income sectors. The Bloomberg U.S. Aggregate Bond Index returned -0.54%. Investment-grade corporates returned -0.59%, high yield -0.42%, and emerging markets -0.25%. Tax-exempt municipals bucked the trend at +0.39%, while senior loans were roughly flat at +0.04%.
Outlook
The May jobs report materially shifted the rate narrative. With payrolls well above expectations and the curve bear-flattening sharply, markets now fully price in a December rate hike from the U.S. Federal Reserve. Newly confirmed Fed Chair Warsh faces a difficult backdrop — inflation remains sticky above target, energy prices continue to drift higher, and the labor market shows little sign of cooling. The bar for cuts has risen considerably; the next move may be a hike.
U.S. economic growth remains resilient, supported by healthy consumer spending and continued investment in technology and AI. However, rising rates and heavy supply are beginning to weigh on sentiment. Geopolitical uncertainty around the Middle East persists, though late-week signals of renewed progress in Iran talks offered some reassurance. We continue to forecast a year-end 10-year yield range of between 4.00% to 4.25%.
Weekly fixed income snapshot
U.S. Treasuries
Yields rose sharply on the week, with the bulk of the move concentrated on Friday after non-farm payrolls came in much stronger than expected. Treasuries had been rangebound earlier in the week before the report triggered a sharp selloff, with the curve bear-flattening as traders fully priced in a rate hike by December. The 2-year closed at 4.16%, the 10-year moved back above 4.50%, and the 30-year approached 5.00%. The move reinforces the structurally higher rate environment, with yields well above 10- and 20-year averages across the curve.
The 2-year Treasury yield rose 15 bps to 4.16%, the 5-year rose 13 bps to 4.27%, the 10-year rose 9 bps to 4.54%, and the 30-year rose 2 bps to 5.00%.
Tax-exempt municipals
Tax-exempt municipals posted a positive return, outperforming Treasuries and most taxable fixed income sectors. The sector’s shorter duration profile and strong demand for tax-advantaged income insulated munis from the broader rate selloff. The favorable summer technical backdrop continues to support the sector, with attractive starting yields drawing steady demand.
The Bloomberg Municipal Index returned +0.39%.
Taxable municipals
Taxable municipals posted a modest negative return, weighed down by the sharp rise in Treasury yields given the sector’s longer duration profile. Despite the pullback, crossover demand remained constructive, and the sector’s yield advantage over comparably rated corporates continues to attract interest.
The Bloomberg Municipal Taxable Index returned -0.37% with spreads at 51 bps.
Investment grade corporates
Investment grade corporates declined on the week as credit widened modestly amid a combination of stretched valuations, macro fatigue, and heavy new issue dynamics. Despite the modest widening, demand undercurrents remained strong, with fund inflows surging to $14 billion — the largest weekly inflow since at least 2021. Exchange-traded funds dominated activity, while insurance accounts continued to execute large trades to extend duration. New issuance was robust at roughly $45.5 billion, bringing year-to-date volume to over $1 trillion, running 25.7% ahead of 2025’s pace.
The Bloomberg U.S. Corporate Bond Index returned -0.59% with spreads at 73 bps.
U.S. high yield corporates
High yield traded rangebound with a softer tone, as the market navigated geopolitical headwinds and a heavy primary calendar simultaneously. Iran’s mid-week announcement that it would suspend negotiations pressured sentiment early, though markets found some relief as ceasefire signals re-emerged. Spreads hovered near 52-week tights, with higher-quality names stable while higher beta lagged. Primary issuance dominated at $13.3 billion, with BBs the relative outperformer.
The Bloomberg High Yield 2% Issuer Capped Index returned -0.42% with spreads at 265 bps.
Preferred securities
Preferred securities finished lower, with AT1s closing down 0.25–0.75 points and domestic preferreds/hybrids unchanged to down 0.25 points. Continued supply weighed on secondaries, headlined by an unexpected deal during the week. Friday’s rate selloff provided an additional headwind, pushing prices lower into the close.
The ICE BofA U.S. All Capital Securities Index returned -0.31% with spreads at 154 bps.
Senior loans
Senior loans posted a modest gain, maintaining a firm tone despite a heavy new issue calendar. The market opened each day near unchanged, with underlying bid technicals well-supported. CLOs remained active buyers, with roughly 41% of leveraged loans now trading above par. Idiosyncratic, earnings-driven names were the primary source of volatility. New issuance was robust at $14.7 billion, with accounts focused on funding primary allocations.
The S&P Leveraged Loan Index returned +0.04% with spreads at 486 bps.
Securitized credit
Securitized sectors were mixed as Friday’s rate selloff pushed agency MBS wider. Current coupon z-spreads ended roughly 4 bps wider at +89 bps. In mortgage credit, new deals continued to price at a rapid pace with spreads of non-qualified mortgages tightening 10–20 bps. ABS saw strong primary demand, though secondary volumes subsided into the week-end move. CMBS secondary flow activity picked up, with customers buying both IG and non-IG risks, and shorter durations outperforming.
The Bloomberg U.S. Mortgage-Backed Securities Index returned -0.69% with spreads at 25 bps. The Bloomberg CMBS ERISA-Eligible Index returned -0.42% with spreads at 63 bps. The Bloomberg Asset-Backed Securities Index returned -0.25% with spreads at 45 bps.
Global emerging markets
Emerging markets debt declined modestly as the stronger dollar and rising U.S. rates weighed on returns. Hard currency sovereigns tightened 3 bps, with high yield outperforming investment grade as spread compression continued. Retail inflows increased to +$1.5 billion on the week. New issuance picked up slightly at $10 billion, though demand was more subdued with books averaging 2.5x coverage amid broader geopolitical uncertainty.
The Bloomberg Global Aggregate Unhedged Index returned -0.25% with spreads at 161 bps.
U.S. Treasury market yields
| Maturity | Yield | Week | Month-to-date | Year-to-date |
|---|---|---|---|---|
| 2-year | 4.15 | 0.14 | 0.14 | 0.67 |
| 5-year | 4.27 | 0.13 | 0.13 | 0.54 |
| 10-year | 4.53 | 0.09 | 0.09 | 0.36 |
| 30-year | 5.00 | 0.02 | 0.02 | 0.15 |
| Source: Bloomberg L.P., 05 Jun 2026. Performance data shown represents past performance and does not predict or guarantee future results. | ||||
Friday’s blowout jobs report forced a sharp repricing of rate expectations, yet credit spreads held firm, underscoring resilient technicals and steady demand.
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 | 4.42 | - | 5.83 | -0.46 | -0.46 | -0.47 |
| U.S. government related | 4.77 | 34¹ | 5.32 | -0.42 | -0.42 | 0.07 |
| Municipal | 3.62 | - | 6.59 | 0.39 | 0.39 | 1.74 |
| High yield municipal | 5.49 | 163² | 7.17 | 0.29 | 0.29 | 3.02 |
| Taxable municipal | 5.15 | 51¹ | 7.56 | -0.37 | -0.37 | 0.15 |
| U.S. aggregate bond | 4.80 | 26¹ | 5.95 | -0.54 | -0.54 | -0.17 |
| U.S. corporate investment grade | 5.26 | 73¹ | 6.82 | -0.59 | -0.59 | 0.08 |
| High yield 2% issuer capped | 7.19 | 265¹ | 2.99 | -0.42 | -0.42 | 1.26 |
| Preferred securities | 6.33 | 152¹ | 5.57 | -0.31 | -0.31 | 1.17 |
| Senior loans³ | 8.87 | 486 | 0.25 | 0.04 | 0.04 | 1.27 |
| U.S. mortgage-backed securities | 5.07 | 25¹ | 5.58 | -0.69 | -0.69 | 0.08 |
| U.S. commercial mortgage-backed securities | 4.92 | 63¹ | 3.73 | -0.42 | -0.42 | 0.18 |
| U.S. asset-backed securities | 4.66 | 45¹ | 2.86 | -0.25 | -0.25 | 0.60 |
| Collateralized loan obligations, AA | 5.11 | 127¹ | 0.25 | 0.11 | 0.11 | 2.27 |
| Collateralized loan obligations, BB | 11.63 | 748¹ | 0.25 | 0.16 | 0.16 | 2.15 |
| Global emerging markets | 6.07 | 161¹ | 5.90 | -0.25 | -0.25 | 1.20 |
| Global aggregate (unhedged) | 3.88 | 27¹ | 6.30 | -0.89 | -0.89 | -0.40 |
| 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, 05 Jun 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.
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her financial professionals.
The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Performance data shown represents past performance and does not predict or guarantee future results. Investing involves risk; principal loss is possible.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. For term definitions and index descriptions, please access the glossary on nuveen.com. Please note, it is not possible to invest directly in an index.
Important information on risk
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.
Investors should contact a tax professional regarding the appropriateness of tax-exempt investments in their portfolio. If sold prior to maturity, municipal securities are subject to gain/losses based on the level of interest rates, market conditions and the credit quality of the issuer. Income may be subject to the alternative minimum tax (AMT) and/or state and local taxes, based on the state of residence. Income from municipal bonds held by a portfolio could be declared taxable because of unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service or state tax authorities, or noncompliant conduct of a bond issuer. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.
Nuveen, LLC provides investment solutions through its investment specialists.
This material is not intended to be a recommendation or investment advice, does not constitute a solicitation buy, sell or hold a security or an investment strategy, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her financial professionals.
The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Performance data shown represents past performance and does not predict or guarantee future results. Investing involves risk; principal loss is possible.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. For term definitions and index descriptions, please access the glossary on nuveen.com. Please note, it is not possible to invest directly in an index.
Important information on risk
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.
Investors should contact a tax professional regarding the appropriateness of tax-exempt investments in their portfolio. If sold prior to maturity, municipal securities are subject to gain/losses based on the level of interest rates, market conditions and the credit quality of the issuer. Income may be subject to the alternative minimum tax (AMT) and/or state and local taxes, based on the state of residence. Income from municipal bonds held by a portfolio could be declared taxable because of unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service or state tax authorities, or noncompliant conduct of a bond issuer. It is important to review your investment objectives, risk tolerance and liquidity needs before choosing an investment style or manager.
Nuveen, LLC provides investment solutions through its investment specialists.
This information does not constitute investment research as defined under MiFID.
