Weekly fixed income commentary Markets digest a hawkish Fed pause

FIXED INCOME WEEKLY COMMENTARY 03 AUGUST 2026

Markets digest a hawkish Key Fed pause takeaways • The Federal Reserve held rates steady in a 9-3 vote, Market recap but three dissenters favor a The U.S. Federal Reserve held rates at 3.50% to 3.75% in a 9-3 vote, with three hike, raising September’s rate dissenters favoring a 25 basis point (bps) hike. The Bank of England and Bank of hike odds to 65%. Japan also stood pat. Oil prices gave back most of last week’s surge, dropping 7% • Oil’s sharp reversal came too as Brent settled at $90. But the damage to rate expectations was already done, late to calm rate expectations, with markets shifting to price a 65% chance of a September hike. The Treasury as the Treasury curve curve bear-steepened, with the long bond selling off 11 bps to 5.27%, a new bear-steepened to a new year-to-date high. year-to-date high. The Bloomberg U.S. Aggregate Bond Index returned -0.12%. Investment grade • Credit spreads held firm on corporates returned -0.06% and preferreds +0.08%. High yield returned +0.18% strong corporate earnings, and emerging markets -0.04%. Mortgage-backed securities returned -0.24%. supporting a high-quality Outlook income strategy amid rate uncertainty. This Fed’s hawkish split makes September a critical meeting, though we don’t expect a hike. Our conviction has softened somewhat given oil’s earlier breach of $100, which continues to work through rate expectations. We maintain our 10-year WHAT WE’RE WATCHING: Treasury yield forecast of 4.25% to 4.50% at year-end 2026.

Credit fundamentals remain solid, backed by strong corporate earnings this quarter. AUGUST Spreads held firm even as rates sold off, a sign of resilient demand. We continue to favor high-quality income given attractive yields. 03 • ISM Manufacturing 04 • JOLTS report 05 • ISM Services 06 • Jobs report

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Markets digest a hawkish Fed pause

Weekly fixed income snapshot 03 August 2026

The curve bear-steepened following the Fed’s decision to hold rates at 3.50% to The 2-year Treasury yield fell 4 bps to 3.75%. The long bond sold off as markets read the inaction as raising the odds 4.29%, the 5-year rose 2 bps to 4.45%, of future hikes, while the 2-year rallied modestly. Rate volatility declined, with the 10-year rose 6 bps to 4.74%, the the MOVE index falling 3 points to 77. Markets now price a 65% chance of a 20-year rose 11 bps to 5.29%, and the September rate hike. Yields remain at post-financial-crisis highs. 30-year rose 12 bps to 5.27%.

Municipals posted a volatile but positive week, outpacing broader fixed The Bloomberg Municipal Index income through Thursday’s close. Longer Treasury rates rose sharply while returned +0.13%. long municipal rates fell, flattening the muni curve. Despite July marking the weakest month since 2003, we think the pullback may offer opportunity. Higher starting yields and improved valuations relative to Treasuries create a compelling entry point for investors able to look past near-term noise. August has been historically strong for muni technicals and returns. Fund flows gathered $761 million, though high yield and long-duration strategies saw outflows for a second straight week as investors favored shorter maturities.

Taxable munis declined as Treasury yield bear-steepening pressured the sector’s The Bloomberg Municipal Taxable longer-duration profile. July posted the weakest month since 2003, though we Index returned -0.42% with think the pullback may create opportunity given higher starting yields. A heavy spreads at 52 bps. $19 billion supply calendar could offer fresh buying at elevated yields.

Investment grade spreads tightened modestly as strong earnings and the rate The Bloomberg U.S. Corporate backup drew yield buyers. Hyperscalers outperformed as expected heavy supply Bond Index returned -0.06% with failed to materialize, and bank spreads benefited from the post-Fed steepening spreads at 78 bps. curve. Fund inflows decelerated to $3.3 billion, well below the four-week average and the lowest since late April. Supply stayed active, with borrowers capitalizing on…