Year-to-date, the Treasury yield curve is flatter and yields are higher. Bond investors are wondering if a resolution to the Iran war can reverse the trend. Oil prices are likely to remain elevated due to the disruption of markets and a slow resumption of production levels. Headline inflation has risen, and US economic growth statistics have been resilient throughout the conflict. Additionally, a weak US fiscal picture remains a persistent background support for higher Treasury yields.
After an extended pause, the Federal Reserve (Fed) seems unlikely to embark on a full path of hikes. Chair Warsh’s five new task forces won’t likely produce results until year end. There could well be a one-and-done hike depending on data and sentiment. The Fed’s reaction function is now not well understood given the amount of potential “regime change” that could follow the task force process.
Corporate demand resets as investors discount extended geopolitical risks. After widening modestly in the second quarter, investment grade and high yield spreads are again priced back to historic lows. Risk-asset demand is supported by positive earnings and economic data, while flows into higher quality bonds are driven by growing diversification trends.
Continued flattening reflects shifting rate policy
DOWNLOAD VIEWS FROM OUR ALPHA PODS
July 2026
Fixed-income perspectives
Risk Limits Example:
Non-USD exposure varies by portfolio.
US current account/fiscal conditions
Interest rate differential
Expectation for growth
Outlook for USD and 12 major currencies
7 voting members
Portfolios may gain exposure to non-USD fixed income based upon:
Risk Limits Example:
0%-100% key rate duration bucket.
Federal reserve policy
Inflation expectations
Multi-factor model
Outlook for yield curve; flatter, steeper or neutral
11 voting members
Portfolios are positioned along the yield curve based on assessment of:
Risk Limits Example:
0.5x to 1.5x Aggregate Sectors
0x to 3x Plus Sectors (HY and emerging markets (EM))
5.0% Non-benchmark Sectors (Bank Loans and Trade Finance)
Historical spread analysis
Volatility analysis
Business cycle
Outlook for each sector: high yield (HY), treasuries, investment grade (IG) corporate, commercial mortgage-backed securities (CMBS), mortgage-backed securities (MBS), municipals, floating rate
9 voting members
Portfolios may be overweighted or underweighted relative to benchmarks after an intensive review of:
Risk Limits Example:
+/- 20% of benchmark duration.
Federal Reserve monetary policy
US growth, inflation and financial conditions
Emerging markets macros & markets
Non-US developed country macro & sovereign relative value
Valuation indicators & quantitative models
US Dollar
Treasury market supply/demand and other technical factors
11 voting members
Portfolios are positioned to benefit from our interest rate outlook based on a thorough economic analysis of:
Currency Strategy
Yield Curve Strategy
Sector Strategy
Duration Strategy
Alpha pod committee profiles