Monthly Fixed Income Market Update: May 2026

MARKET NEWS

• Markets navigated heightened geopolitical uncertainty throughout May as negotiations between the US and Iran evolved, while persistent inflation pressures contributed to a global bond sell-off
• Kevin Warsh was confirmed as Federal Reserve (Fed) Chair by the narrowest Senate margin on record, assuming leadership as markets weigh conflicting economic signals and the future direction of monetary policy
• Higher energy prices tied to the US-Iran conflict kept inflation pressures elevated; CPI increased 0.6% in April, in line with expectations, while PPI rose 1.4%, well above forecasts and marking the largest monthly increase since 2022
  • Markets increasingly priced in a more restrictive monetary policy outlook, with the market-implied probability of a Fed rate hike by 2027 rising to 67%
• The labor market showed continued signs of stabilization as non-farm payrolls increased by 115k in April, well above estimates, while the unemployment rate was unchanged at 4.3%
• Treasury yields were volatile, rising sharply mid-month amid inflation concerns before partially retracing as geopolitical tensions eased; the curve flattened, as the spread between the 2- and 10-year Treasury rates tightened 7bps to 43bps
• Credit markets were resilient as investment-grade (IG) and high-yield (HY) corporate spreads tightened by 6bps and 11bps, respectively, to 72bps and 257bps; both sectors ended the month at their tightest spread levels since 1998 and 2007, respectively
  • Technology and Insurance were among the best performing sectors, while Banking lagged; higher-quality issuers outperformed lower-quality issuers, with BBs outperforming CCCs by 31bps
• Investors easily absorbed another $164 billion of IG corporate supply, although the total fell short of dealer forecasts of $175 billion
  • New issue concessions have averaged 3.7bps year-to-date, compared to 2025’s average of 3.3bps
• HY corporate issuance benefitted from attractive funding levels, totaling just under $27 billion, despite periods of weaker market sentiment
• Asset-backed securities (ABS) underperformed other securitized sectors as issuance of $38 billion – the busiest month of the year – provided a headwind
• Municipal bonds outperformed Treasuries as muni/Treasury ratios fell across the curve, supported by favorable technicals and robust demand

MARKET STATISTICS

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As of 5/31/26. Sources: Bloomberg
 

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