The Fed holds rates unchanged, a record-breaking week of IG issuance, and war-driven rate pressure on municipals headline this week’s fixed income commentary for the week of March 18, 2026.
Economic Commentary
- The FOMC kept rates unchanged, as expected, citing the uncertain economic impact from the war. Only Stephen Miran dissented. Notably, Waller — who is no longer campaigning for the Chairmanship — did not dissent at this meeting.
- The FOMC dot plots were revised modestly, with growth and inflation both nudged slightly higher. The dots still show one cut in 2026 and one cut in 2027.
- Chair Powell said the Fed expects tariff impacts to roll out of the inflation numbers this year. If that does not happen, he stated there will be no cuts.
- Q4 GDP growth was revised sharply lower from 1.4% to 0.7%. The biggest revisions were to consumption (from 2.4% to 2.0%) and business fixed investment (from 2.6% to 1.6%). Spending on goods was revised up, while service spending was revised down.
- Durable goods orders were unchanged in January. Transportation orders fell 0.9%, likely due to severe weather in the final week of the month. Core orders were unchanged after rising 0.8% in December; core shipments fell 0.1% after a 1.0% December gain.
- The PCE deflator rose 0.3% headline and 0.4% core, as expected. The core reading was near the low end of what would round to 0.4%, coming in at 0.363% versus 0.358% in December.
Our Take
The two most important drivers of rates and Fed policy will be the war’s impact on core and headline inflation, and whether tariff effects roll out of the numbers as expected. If the conflict lasts longer and/or tariff impacts prove more durable, the FOMC will be less inclined to cut anytime soon. Market reaction has been swift — any rate cuts in 2026 have been priced out, with the first cut now not expected until July 2027.
Corporate Bond Market Commentary
Investment Grade (IG) Bonds
- IG spreads widened 9bp to +93bp; total returns were -1.36%.
- IG new issue supply surged with 23 issuers pricing $115 billion — the second largest week on record. Jumbo deals from Amazon, Honeywell Aerospace, and Salesforce led the way. Books were 3.4x covered, new issue concessions were a very high 12.7bp (driven by the Salesforce deal), attrition was 19%, and deals tightened an average of 25bp from IPT to final pricing.
- Estimated IG supply for the coming week is $40 billion.
- IG fund flows were +$3.3 billion.
High Yield (HY) Bonds
- HY spreads widened 15bp to +328bp; total returns were -0.74% (BBs -0.82%, Bs -0.61%, CCCs -0.66%).
- HY new issue supply was $5 billion with deals from Fair Isaac, Moog, Penn Entertainment, Kodiak Gas, Calumet, California Resources, and Esab Corp.
- HY fund flows were -$1.5 billion — the largest outflow so far this year. Leveraged loan outflows were -$325 million.
Our Take
Corporate bond returns have suffered since the onset of the Middle East war due to both rising rates and wider spreads, with the rate component being the larger contributor. We have not yet seen a meaningful risk-off move comparable to previous conflicts that disrupted global energy and supply chains. Markets appear to be pricing in a relatively quick resolution in the coming weeks; if that does not materialize, credit markets could face further downside.
Municipal Bond Market Commentary
- The municipal bond index declined -0.50% last week, dropping the month-to-date return to -1.42%.
- Muni yields rose +4, +11, +17, and +12bps at the 1-, 5-, 10-, and 30-year maturities; ratios moved to 60%, 60%, 66%, and 88% at those same tenors.
- New issue volume was $13.8 billion; this week’s calendar totals $10.3 billion ($9.4 billion tax-exempt).
- Fund flows were a modest +$602 million, split between $76 million into mutual funds and $526 million into ETFs — the lightest inflow since the week of January 14th.
Our Take
Municipal bonds are tracking US Treasuries lower as the war pushes oil prices and interest rates higher. Technicals are providing little support, with supply elevated and tax payment seasonality weighing on fund flows. Once rates stabilize and we move past March and April, munis may find firmer footing. With 10-year ratios approaching recent highs, the coming weeks may offer attractive opportunities to add exposure.
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