Taxable Bond Snapshot June 2026

Key Takeaways:

• Rates sold off, led by the front end of the Treasury curve, while longer-term Treasuries held up better. Investors shifted their focus from the conflict in Iran to the Federal Reserve and the domestic economy, as the market increased expectations for potential rate hikes.
• The first FOMC meeting under Chairman Warsh struck a decidedly hawkish tone. With 9 of the 18 Committee members now expecting at least one rate hike in 2026, markets are pricing roughly an 80% probability that the first hike will come by September.
• Credit and mortgage spreads traded in narrow ranges for much of June before finishing the month a touch wider. The Bloomberg US Aggregate Bond Index returned +0.24% in June.

TAXABLE BOND MARKET UPDATE & OUTLOOK

• With rates higher and the curve flatter led by the front end, the US Aggregate Bond Index managed to post a positive return in June, up 0.24%. Long duration led the way, with the 10+ year sector of the Index up 0.71%.
• The signing of a Memorandum of Understanding (MOU) by the US and Iran to end the war eased tensions in the Middle East and brought oil prices down significantly. Economic data remained solid. The focus going forward will be whether or not the FOMC tightens or remains on hold.
• Treasury yields moved higher, particularly inside the 3-year sector of the curve, as markets priced in the potential for Fed rate hikes. Declining oil prices following the MOU announcement helped keep longer-term yields relatively contained.
• Investment-grade (IG) corporate credit lagged Treasuries, with spreads wider by 2 basis points (bps). The IG Index traded in a narrow range for the past two months and the option-adjusted spread (OAS) of the Index closed June at 74 bps.
• High yield (HY) credit spreads also widened, as the OAS of the US HY Index ended the month at 270 bps, 13 bps wider. The HY Index marginally outperformed the Aggregate Index, benefiting from the added carry and posting a 0.27% return for June.
• Securitized products lagged Treasuries but outperformed corporates on a duration-adjusted basis. With volatility slightly higher, spreads for agency mortgage-backed securities (MBS) widened on the month. The Index ended June at an OAS of 24 bps, 2 bps wider.
• Asset-backed securities (ABS) outperformed similar duration Treasuries and other spread product. The ABS Index posted an excess return for the month of 0.07%, versus -0.07% for MBS and -0.18% for IG corporates.
• The preferred sector lagged most other fixed income sectors for the month, returning -0.20% in June, reflecting the sell-off in the equity markets and sensitivity to rates.
  

  SECTOR ALLOCATION	POSITIONING
  DURATION & YIELD CURVE	Our duration stance remains neutral. The hope for an end to the war in Iran should ease longer-term inflation concerns, but the FOMC’s hawkish pivot keeps the potential for rate hikes this year in play. 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 remains an attractive carry environment, with a focus on high-quality, liquid issues and issuers.
  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. While valuations are on the rich side relative to longer-term averages, the credit story remains compelling for carry-focused investors as the US economy continues to be resilient. Overall, corporate fundamentals are solid, earnings remain supportive, and technicals are favorable given attractive all-in yields.
  SECURITIZED	Agency MBS and ABS continue to be core components of our portfolio allocation. Spreads for MBS are trading slightly wide of their 6-month range, volatility is relatively low but range bound, and technicals remain constructive. We feel that the securitized market still offers attractive relative value and favorable risk-adjusted return potential in the current environment.