Fixed Income Update
Short-term Treasury yields declined modestly this week as softer economic data further reduced expectations for Federal Reserve rate hikes in the coming months.
Last week’s employment report, which showed payrolls fell by 23,000 in July, left bond investors closely focused on this week’s economic releases. With the labor market showing few signs of overheating, inflation remains the primary driver of expected Fed policy at this stage of the cycle. That made this week’s inflation data especially important. On Tuesday, headline CPI was reported largely in line with expectations at 0.1% for July, while core CPI also matched expectations at 0.2%. Year over year, headline CPI slowed from 3.5% to 3.4%, and core CPI slowed from 2.6% to 2.5%. The July moderation also brought the year-over-year inflation rate down from above 4% in May to 3.3%.
Producer prices were unchanged in July, below expectations for a 0.2% increase. Together, this week’s inflation reports helped fuel a relief rally that pushed short-term yields lower and reduced the implied odds of a September rate hike from more than 50% at the start of the week to about 30% as of this writing.
Friday’s retail sales report closed out the week’s economic releases. Sales unexpectedly fell 0.6% in July, the first decline in 2026 and well below the consensus estimate for a 0.1% increase. The decline may not materially change the Fed’s outlook, as consumers were already expected to pull back as higher gas prices took hold. Even so, the report supports the view that the Fed is likely to hold rates steady at next month’s meeting.
Elsewhere in the bond market, the U.S. Treasury sold 30-year bonds this week at a 5.22% interest rate, the highest since 2001, as investors demanded greater compensation to finance the nation’s growing deficit. Inflation concerns, fiscal risks, and a pullback in Fed purchases of Treasuries have all contributed to elevated longer-term yields. Those higher financing costs are increasingly drawing political attention ahead of the midterm elections as they filter through to the broader economy.
U.S. bond investors also took note of reports that the United States coordinated with Japanese officials in late July to strengthen the yen. Japan is the largest foreign holder of U.S. Treasury securities, and without outside support, Japanese officials could be pressured to sell Treasuries to raise dollars and buy yen. A note from the Kansas City Fed estimates that Treasury yields could rise by 20 to 100 basis points for each standard-deviation increase in foreign Treasury sales. By selling euros in late July to buy yen, the U.S. Treasury may have reduced Japan’s near-term incentive to sell its U.S. Treasury holdings.
As of August 14, 2026
|
Index |
Current |
Last Week |
Wk Chg |
Last Year |
Yr Chg |
|
Tax-exempt MMF |
1.91% |
1.98% |
-.07% |
2.23% |
-.32% |
|
Taxable MMF |
3.66% |
3.66% |
.00% |
4.28% |
-.62% |
|
|
|
|
|
|
|
|
2-Year Treasury |
4.16% |
4.20% |
-.04% |
3.73% |
.42% |
|
5-Year Treasury |
4.35% |
4.35% |
.00% |
3.82% |
.54% |
|
10-Year Treasury |
4.69% |
4.65% |
.04% |
4.29% |
.40% |
|
30-Year Treasury |
5.26% |
5.20% |
.06% |
4.87% |
.39% |
|
5-Year Exp. Inflation |
2.25% |
2.23% |
.02% |
2.46% |
-.22% |
|
|
|
|
|
|
|
|
2-Year Municipal** |
2.59% |
2.61% |
-.02% |
2.39% |
.19% |
|
5-Year Municipal** |
2.88% |
2.91% |
-.02% |
2.67% |
.22% |
|
10-Year Municipal** |
3.34% |
3.38% |
-.03% |
3.47% |
-.12% |
|
30-Year Municipal** |
4.57% |
4.60% |
-.04% |
4.98% |
-.41% |
|
|
|
|
|
|
|
|
Fed Funds |
3.75% |
3.75% |
.00% |
4.50% |
-.75% |
|
Prime Rate |
6.75% |
6.75% |
.00% |
7.50% |
-.75% |
|
Dollar*** |
$99.61 |
$99.54 |
$0.07 |
$98.25 |
$1.35 |
|
CRB |
$388.37 |
$380.83 |
$7.54 |
$295.09 |
$93.28 |
|
Gold |
$4,394.00 |
$4,340.70 |
$53.30 |
$3,335.20 |
$1,058.80 |
|
Crude Oil |
$82.01 |
$78.18 |
$3.83 |
$63.96 |
$18.05 |
|
Unleaded Gasoline**** |
$3.18 |
$2.99 |
$0.19 |
$1.97 |
$1.21 |
* Composite A
** General Obligation AA+
*** Int'l value of the U.S. dollar (Avg. exchange rate between the dollar and 6 major world currencies).
**** Futures price per gallon
Stock Market Update
US equities continued to look past Middle East uncertainty, higher oil prices, and elevated bond yields this week, reflecting investors’ willingness to focus on macro data and strong corporate fundamentals. Encouraging inflation updates and AI-linked earnings helped boost US equities midweek after a lackluster start. Through Thursday’s close, both the S&P 500 and Nasdaq were on pace for their third consecutive weekly gain.
Geopolitical uncertainty lingered throughout the week, with no material progress in US-Iran negotiations. Optimism had risen last week after Treasury Secretary Scott Bessent commented that an agreement to reopen the Strait of Hormuz could come shortly. As the conflict has now extended into its sixth month, the US is preparing to ratchet up economic pressures on Iran. Oil prices moved higher again this week, with West Texas Intermediate crude trading near $82/barrel Friday morning, amid the apparent lack of traction behind a near-term deal. A key economic question is how higher energy prices will affect both company profitability and consumer health; the impact on inflation perhaps remains the larger concern. For now, US equities continue to treat the move as manageable.
After US equities received a boost from last Friday’s July nonfarm payrolls print, which lifted investor hopes that the Federal Reserve (Fed) would remain on hold at its September meeting, investors received another boost this week. Relatively tame July inflation prints further lifted expectations that the Fed could refrain from raising rates next month. Per the CME FedWatch Tool, the probability that the Fed remains on hold at its September meeting rose to 67.4% as of Friday morning, up from 55.6% one week ago and 41.9% one month ago. A continued pause from the Fed could support equity valuations and reduce the near-term risk of a policy-driven slowdown. Still, additional employment and inflation data will be released in front of the Fed’s September meeting.
Renewed enthusiasm behind the AI trade, particularly AI hardware and infrastructure names, has been a key driver of 2026 market performance. While the earnings calendar was lighter this week, select AI-linked technology results helped support equity gains. CoreWeave and Super Micro Computer posted quarterly results and outlooks that reinforced investors’ view of a strong AI backdrop and supported the AI momentum trade. The durability of AI-related capital spending remains a key to sustaining that momentum.
Next week, investors will focus on a heavy slate of quarterly results from US retailers for an update on the health of the US consumer. Other potentially market-moving events on the near-term horizon include Nvidia’s second-quarter earnings results on August 26th and the Jackson Hole Economic Policy Symposium, scheduled for August 27th to 29th, where investors will hear a keynote address from Fed Chair Kevin Warsh. Nvidia’s results will be closely watched as a gauge of AI demand, while commentary from Jackson Hole could help shape Fed policy expectations going into year-end. With September approaching, the market is nearing a historically challenging month for US equity performance. We will see whether Nvidia and/or Warsh can set US equities on the right foot ahead of September 1st.
As of August 13, 2026
|
Index |
Current Week |
Month of Aug. |
YTD |
|
Dow Jones Industrial Avg. |
-0.34% |
2.61% |
13.05% |
|
S&P 500 |
0.55% |
4.16% |
14.72% |
|
Nasdaq |
0.43% |
5.65% |
15.72% |
|
MSCI EAFE |
0.39% |
2.66% |
14.98% |
|
Russell Mid Cap |
1.37% |
4.60% |
19.86% |
|
Russell 2000 |
0.62% |
4.18% |
23.83% |
