Monthly Bond Commentary - June 2026

The US-Iran war looks to have resumed in the first days of July adding upward pressure to Treasury yields via higher inflation expectations. Even prior to these developments we have been expecting Treasury bond yields are likely to remain higher than prior to the conflict as inflation rates are rising. Data released in June showed that Core PCE (the Fed's preferred inflation measure) rose to 3.4% continuing an upward trend which began in June 2025. New Fed Chairman Kevin Warsh has committed to bringing inflation back to the 2% target. However, markets are working to understand his exact position as he has cut forward guidance in favour of data dependence.

Credit ended the month relatively unchanged with spreads 2bp wider and total returns muted relative to last year. However, this masks the insatiable demand investors have for fixed income. Year-to-date Corporate Fixed Income ETFs have seen net inflows of $61.4bn compared with $53.9bn in the same period last year, supporting tight credit spreads. Part of this demand is directed at new issues which continue to dominate the narrative in credit this year. At the start of this month Amazon completed the seventh $25bn+ bond issue of the year. To put this in context, this is more mega-issuance than the previous six-years combined. Cover ratios - an indication of demand in the credit market - slipped over that time as investors are conscious of more issuance still to come from the hyperscalers, but positive inflows help to enable this rapid debt gorge from hyperscalers.