Macro
The July 30 Federal Open Market Committee meeting was largely uneventful as there were no adjustments to the policy rate or material changes to the prior meeting’s statement.
While it was notable that two members of the Federal Reserve Board of Governors dissented, preferring a rate cut at the meeting, this was generally anticipated in advance.
July inflation reports showed upward price pressures on goods, possibly indicating passthrough impacts from tariffs.
Labor reports for July were disappointing, with a cumulative 258,000 negative revision to the prior two months of payroll growth. The unemployment rate rose to 4.2%, while the labor force participation rate fell to 62.2%.
Following the lackluster report, implied market probabilities for a September rate cut increased to nearly 90%.
Credit
During July, approximately $80 billion in new issuance was priced, slightly below expectations. Forecasts for August anticipate $95 billion of new supply.
In July, credit markets experienced strong performance as the Bloomberg U.S. Investment Grade Credit Index tightened seven basis points (bps), to an option-adjusted spread of 72 bps.
This represented a new year-to-date low and was within just one basis point of the post-global financial crisis low of 71 bps that was reached in November 2024.
Structured
July activity in ABS markets was robust with $41.1 billion in new issuance.
Strong technical demand remains entrenched as deals remain well oversubscribed, leading to tighter spreads.
Excess returns for the Bloomberg Mortgage-backed Securities Index were flat for the month as lower quality sectors outperformed.
Chart of the Month
Corporate Bond Spreads, 12/31/21-Present*
- Investment-grade risk premiums are currently expensive relative to historical ranges.
- Long-duration spreads are particularly rich, while shorter-duration spreads are moderately more attractive on a relative basis.
*Orange diamond denotes current value. As of 7/31/2025. Source: Bloomberg L.P. View accessible version of chart.
Market Data
| Yields |
YTM % |
MTD Change |
QTD Change |
YTD Change |
| 3-Mo UST |
4.34 |
0.04 |
0.04 |
0.02 |
| 2-Yr UST |
3.96 |
0.24 |
0.24 |
-0.29 |
| 5-Yr UST |
3.97 |
0.18 |
0.18 |
-0.41 |
| 10-Yr UST |
4.38 |
0.15 |
0.15 |
-0.20 |
| 30-Yr UST |
4.90 |
0.13 |
0.13 |
0.12 |
| Risk Premia |
OAS (bps) |
MTD Change |
QTD Change |
YTD Change |
| Investment Grade Credit |
72 |
-7 |
-7 |
-5 |
| Asset-Backed Securities |
51 |
-6 |
-6 |
7 |
| High Yield |
278 |
-12 |
-12 |
-9 |
As of 7/31/2025. Source: Bloomberg L.P.
Bloomberg Sector/Index Performance (USD)
| |
Duration (yrs.) |
MTD Excess
Return (%) |
YTD Excess
Return (%) |
MTD Total
Return (%) |
YTD Total
Return (%) |
|
Sector
|
| Investment Grade Credit |
6.58 |
0.54 |
0.82 |
0.05 |
4.28 |
| Mortgage-Backed Securities |
5.96 |
0.00 |
0.10 |
-0.40 |
3.81 |
| Asset-Backed Securities |
2.57 |
0.23 |
0.21 |
0.13 |
3.06 |
| High Yield |
2.78 |
0.59 |
1.66 |
0.45 |
5.04 |
| |
Duration (yrs.) |
MTD Excess
Return (%) |
YTD Excess
Return (%) |
MTD Total
Return (%) |
YTD Total
Return (%) |
|
Index
|
| 1-3-Yr Government Credit |
1.79 |
0.03 |
0.15 |
-0.02 |
2.90 |
| Intermediate Government/Credit |
3.67 |
0.14 |
0.29 |
-0.14 |
3.99 |
| U.S. Aggregate |
5.97 |
0.16 |
0.26 |
-0.26 |
3.75 |
As of 7/31/2025. Source: Bloomberg L.P.
Corporate Bond Spreads, 12/31/21-Present*
| |
U.S. Corporate Investment Grade |
1-3 Yr U.S. Corporate |
Long U.S. Corporate |
| Min |
73.58 |
30.08 |
93.29 |
| Median |
96.16 |
58.39 |
126.31 |
| Max |
164.23 |
131.24 |
202.77 |
| Current |
75.71 |
46.27 |
94.12 |
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of future results.
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