Weekly fixed income commentary Oil price shock reshapes Fed rate expectations

FIXED INCOME WEEKLY COMMENTARY 27 JULY 2026

Oil price shock reshapes Key Fed rate expectations takeaways • Oil’s 9% climb amid Middle East tensions pushed Market recap Treasury yields sharply Markets faced renewed unrest as Middle East tensions boosted oil prices 9%, higher, with the curve bear- reviving inflation fears and overshadowing last week’s moderate CPI and PPI flattening across maturities. data. Global rates climbed broadly, and the U.S. Treasury curve bear-flattened in a • Markets now price a 38% reversal from last week’s rally. The 2-year yield rose 15 basis points (bps) to 4.33% chance of a Fed rate hike and the 30-year yield climbed 9 bps to 5.16%. Markets now price a 38% chance at this week’s meeting, a of a rate hike at this week’s U.S. Federal Reserve meeting, up sharply from prior notable increase. expectations. Equities held mostly steady, buoyed by strong corporate earnings. • Despite spread widening, Fixed income returns were broadly negative amid the sharp rate move. The credit fundamentals remain Bloomberg U.S. Aggregate Bond Index returned -0.74%, with investment grade solid as rate moves—not corporates at -0.92% and preferreds at -0.71%. High yield corporates returned credit deterioration—drove -0.57% and emerging markets at -0.75%, while MBS returned -0.77%. negative fixed income returns. Outlook

All eyes turn to this week’s Fed meeting. We expect the committee to hold rates steady, but acknowledge the risk to higher rates has grown materially amid oil- WHAT WE’RE WATCHING: driven inflation concerns. Fed Chair Warsh is likely to emphasize that policy remains dependent on incoming inflation and labor data, with no changes imminent. We maintain our year-end 2026 forecast of 4.25% to 4.50% for the 10- JULY year Treasury yield, though upside risks have increased. 29 • U.S. Federal Open Market Credit fundamentals remain broadly supportive. This week’s spread widening Committee meeting stemmed from the rate selloff rather than deteriorating credit quality. Investment grade corporate primary markets remain active, on pace to challenge all-time 30 monthly issuance records. Looking ahead, we favor carrying high-quality income, • Bank of England meeting, with spread sectors offering attractive all-in yields near multi-year highs as U.S. PCE inflation, U.S. Q2 GDP volatility persists. 31 • Bank of Japan meeting, euro area CPI

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Oil price shock reshapes Fed rate expectations

Weekly fixed income snapshot 27 July 2026

The yield curve bear-flattened, reversing last week’s gains as the rapid ascent of The 2-year Treasury yield rose oil prices overshadowed cooler inflation data. Markets now price a 38% chance 15 bps to 4.33%, the 5-year rose of a rate hike at this week’s Fed meeting, with multiple hikes possible by year- 15 bps to 4.43%, the 10-year rose end. Rate volatility rose sharply, with the MOVE Index climbing 13 points to 80, 13 bps to 4.68%, the 20-year rose and yields remain well above their 10- and 20-year averages. 11 bps to 5.18% and the 30-year rose 9 bps to 5.16%.

Tax-exempt municipals declined meaningfully, underperforming as the rate The Bloomberg Municipal Index selloff weighed on longer-duration bonds. The sector still offers attractive returned -1.19%. income for patient investors. We maintain our preference for longer duration in munis over Treasuries and view any potential weakness as a buying opportunity.

Taxable munis declined as the sector’s longer duration profile amplified the The Bloomberg Municipal Taxable impact of rising rates. Year-to-date performance turned slightly negative, Index returned -0.79% with though demand from crossover investors persists at elevated yield levels. spreads at 50 bps.

Investment grade spreads finished modestly wider, though flows skewed toward The Bloomberg U.S. Corporate buying as the rate backup drew in yield buyers. Hyperscalers faced pressure from Bond Index returned -0.92% with AI uncertainty and heavy supply, while bank spreads outperformed on strong spreads at 79 bps. earnings. July volume remains on pace to challenge all-time monthly…