Taxable Bond Snapshot July 2026

Key Takeaways:

• Renewed tensions in the Middle East and a “Hawkish Hold” from the Federal Open Market Committee (FOMC) pushed Treasury yields higher on the month. The yield on the 30-year Treasury closed the month at 5.28% (up 32 basis points (bps)), reaching its highest level since 2007.
• Relatively benign jobs data along with sticky inflation numbers over the course of the month led the FOMC to keep the federal funds rate on hold for the seventh straight meeting, with three dissenters voting in favor of a 25 bp hike.
• Spread product underperformed Treasuries, with most sectors posting negative excess returns. The Bloomberg US Aggregate Bond Index returned -1.30% in July.

TAXABLE BOND MARKET UPDATE & OUTLOOK

• The US Aggregate Bond Index was down 1.30% in July. Performance was driven by the sharp move higher in Treasury yields, led by the back end of the curve, with spreads also moving wider.
• Renewed tensions in the Middle East pushed oil prices higher, causing Treasury yields to sell off. On July 29 the FOMC voted 9-3 to keep the federal funds rate on hold, with three dissenters calling for a hike, which sent 10- and 30-year rates to their highs for the year.
• The US Treasury curve bear steepened materially in July, with the long end selling off significantly. The yield for the 2-year Treasury note backed up by 12 bps, 5- to 10-year Treasuries sold off by 22-27 bps, and the yield on the 30-year bond rose by 32 bps.
• Investment-grade (IG) corporate credit lagged Treasuries, as spreads widened by 4 bps. The Bloomberg US Corporate Bond Index broke out of its tight trading range, with the option-adjusted spread (OAS) of the index closing June at 78 bps.
• High yield (HY) credit spreads widened as well, as the OAS of the Bloomberg US Corporate High Yield Index ended the month at 279 bps, 9 bps wider. The HY Index outperformed the Aggregate Index, returning -0.27% for July.
• Mortgages lagged both Treasuries and corporates on a duration-adjusted basis. With volatility higher, spreads for agency mortgage-backed securities (MBS) pushed out to their widest levels of the year. The Bloomberg US ABS Index ended July at an OAS of 31 bps, 7 bps wider.
• Asset-backed securities (ABS) were one of the few bright spots within fixed income, outperforming similar duration Treasuries and other spread product. The ABS Index posted an excess return of 0.05%, versus -0.44% for MBS and -0.26% for IG corporates.
• The preferred sector outperformed most other fixed income sectors for the month, returning -0.40% in July, as performance in equity markets was relatively flat.
  

  SECTOR ALLOCATION	POSITIONING
  DURATION & YIELD CURVE	Our duration stance remains neutral. The market’s reaction to the FOMC’s hawkish hold has kept open the potential for rate hikes this year. Given the uncertainty about the future path for inflation, we deem a neutral stance to be prudent until there is more clarity regarding whether or not the Fed will raise rates.
  TREASURIES	We maintain our overweight to spread product versus Treasuries in what is an attractive carry environment, with a focus on quality and liquidity.
  GOVERNMENT RELATED	Likewise, we continue to be overweight taxable municipal bonds, supported by strong fundamentals and the relatively recession-resistant characteristics of the asset class.
  CORPORATE BONDS	Tactically, we remain overweight corporates. Despite uncertainties around the war in Iran and how the FOMC will respond to above-target inflation, the corporate credit story remains compelling for carry-focused investors as the US economy continues to be resilient. Overall, corporate fundamentals remain solid, earnings continue to be supportive, and technicals remain favorable given attractive all-in yields.
  SECURITIZED	Agency MBS and ABS continue to be core components of our portfolio allocation. Spreads for MBS have widened recently, volatility is slightly elevated but range bound, and technicals remain reasonably constructive. We feel that the securitized market offers attractive relative value and favorable risk-adjusted return potential in the current environment.