Monthly Market Monitor

Macro

August labor market data was stronger than expected. Nonfarm payrolls increased by 127,000, plus an upward revision of 55,000 for the prior two months. The unemployment rate remained at 4.1%, and the increase in labor force participation is an encouraging sign. Wage growth also firmed, with average hourly earnings rising 0.3% in August and July's gain revised higher. However, the 3.1% year-over-year (y/y) increase remains below the pace of inflation.

Inflation remained firm in July as both core and headline Personal Consumption Expenditures (PCE) readings came in slightly above expectations at 3.3% and 3.7% y/y, respectively. Supercore PCE, which measures underlying services inflation, increased 0.3% month-over-month and accelerated from 0.2% in June. The data suggest broad-based services inflation remains persistent and is not showing meaningful signs of cooling.

In late August, U.S. Treasury Secretary Scott Bessent announced a significant expansion of Treasury buyback operations, characterizing the program as a “Treasury Twist” that will buy long-dated debt while increasing issuance of shorter-term securities. Long-term Treasury yields initially declined following the announcement, but much of the move quickly reversed, suggesting investors remain skeptical that the program can significantly alter the broader supply-demand balance. Notably, the announcement coincided with U.S. public debt surpassing $40 trillion for the first time.

At the Federal Reserve's (Fed's) annual Jackson Hole symposium, Chair Kevin Warsh emphasized that inflation has not slowed sufficiently and reiterated the Fed's commitment to its 2% target. He reasoned that current monetary policy is not meaningfully restraining economic activity and implied that rates might not be restrictive enough to ensure inflation returns sustainably to target.

Credit

August issuance totaled $177 billion, driven by continued hyperscaler issuance and mergers-and-acquisition financing activity. Despite the heavy summer volume, demand remained constructive with deals generally well subscribed. Syndicate desks are forecasting a very active September with more than $200 billion in new issuance anticipated.

August has historically been a light month for high-yield (HY) new issuance, and only $16.3 billion was priced during the month. The HY index posted excess returns of 76 basis points (bps), supported by healthy fundamentals and favorable technicals.

Structured

Mortgage-backed securities (MBS) benefited from diminished interest rate volatility as the sector posted 23 bps of excess return. Tighter monetary policy and a flatter yield curve may serve as headwinds for the sector; however, MBS supply will likely trend lower into year-end because of reduced refinancing incentives and sluggish home purchase demand.

Asset-backed securities issuance remains elevated, but strong investor demand for short-duration assets continues to support the sector. New supply continues to be dominated by the auto sector.

Chart of the Month: Long-term Government Bond Yields Under Pressure 

• Global bond yields have risen steadily during the summer, with many countries' 30-year sovereign debt yields reaching their highest levels in decades.
  
  
• In the U.S., the move reflects a wide range of monetary, fiscal, macro and geopolitical factors.
  
  
• Robust artificial intelligence-related corporate issuance is another contributing factor as much of the new debt has been longer-dated, partially crowding out demand for U.S. Treasuries.

As of 8/31/2026. Source: Bloomberg L.P. View accessible version of chart.