Rising Treasury yields, persistent inflation concerns, and resilient credit markets define this week’s fixed income landscape. Here is our analysis of economic conditions, corporate bonds, and municipal markets for the week of June 4th, 2026.
Economic Commentary
- The April JOLTS report saw a large increase in job openings and a drop in layoffs, as openings rose to 7.618 million and the openings rate rose from 4.2% to 4.6%, the highest since November 2024, though this was tempered somewhat by the fact that the openings increase was heavily concentrated in the professional and business services sector. Quits fell from 3.16 million to 2.98 million. The layoffs rate slowed from 1.2% to 1.1%.
- ISM Services prices paid component was above 70 for the third consecutive month and the highest since late 2022. New orders and production are strong despite respondents emphasizing rising input costs and policy uncertainty. On the labor market side, the decent 122k growth in private payrolls reported by ADP is at odds with the ISM’s 47.9 employment that implies falling service sector payrolls. However, the ISM mentions firms having difficulty finding qualified workers, so it may be labor supply holding back job growth rather than labor demand.
- Either way, Friday’s jobs report will be the more authoritative labor market indicator for investors and Fed officials.
- The ISM manufacturing index rose from 52.7 to 54.0, the strongest reading since May 2022. May’s release marks five consecutive months over 50 after five years in which the index cracked 50 only once, in January 2025.
Our Take
Recent economic statistics paint a picture of strong growth, elevated prices, and no obvious slowdown in the labor market. However, we don’t believe the full impact of higher prices for fuel, fertilizer, plastics, transportation, and other crucial inputs has arrived yet. Some of these operate with a significant lag. When the reality of these higher prices hits and perhaps stays there for an extended period of time and can’t be considered a blip, that is when the demand-side reaction could occur and prompt a slowdown. Many oil market observers are warning that prices could rise sharply in the weeks ahead when inventory draws reach critical levels, even if the Strait of Hormuz begins to open soon. We may not be out of the woods yet, so keeping some dry powder for further bouts of volatility may be prudent.
Corporate Bond Market Commentary
- Investment grade spreads tightened -1bp to +73bp, and total returns were +0.77%.
- IG new issuance was $41 billion across 25 deals, well ahead of the $30 billion estimate. NICs were 1.6bp, books were 3.9x covered, attrition was 21%, and deals were tightened 28bp on average from IPT to final pricing.
- IG fund flows were +$2.41 billion.
- High yield bond spreads tightened 2bp to +272bp, and total returns were +0.53% (BBs +0.50%, Bs +0.62%, CCCs 0.38%).
- HY new issuance was $$4 billion
- HY fund flows were -$69.1 million and leveraged loan funds were a robust +$699 million.
- HY dealer positioning was virtually unchanged week-over-week, with the net long holding at a YTD high of $4.6 billion.
Our Take
We are awash in new-issue supply of debt. US IG issuance is up ~25% y/y and US HY issuance is up over ~40% y/y. This was a trend we expected entering the year, as hyperscalers and other AI companies continued to seek capital to expand data center capacity, even at elevated borrowing costs. The current wave of supply may persist, and as investor exposure to single-name data center risk builds, some areas of the market could see wider new-issue concessions and sector repricing.
Municipal Bond Market Commentary
- The municipal bond index returned +1.14% last week.
- Muni yields were -14bp, -12bp, -13bp, and -18bp, and ratios were -3%, -1%, -1%, and -2% to 64%, 62%, 66%, and 86% at 1, 5, 10, and 30 years respectively.
- Fund flows were +$669 million into mutual funds and $1.757 billion into ETFs. Flows into ETFs hit a 31-week high, making it the 3rd best week in history, and net flows for May set a new all-time record high of $7.5 billion.
- Investors received $17 billion of maturing and called bond principal on June 1st and should receive another $8.3 billion on June 15th. June is expected to be the biggest redemption month of the year.
- Net supply estimates are only $8 billion in June despite the surge in new issuance, before falling to $4 billion in July, $10 billion in August, and $26 billion in September, and $38 billion in October.
- Last week’s new issue volume was $9.8 billion, of which $9 billion was tax-exempt.
- The calendar this week is $18.8 billion, which would be a 43-week high.
Our Take
Markets are setting up well as we expected into the seasonally strongest time of the year for municipal bonds. Elevated new issue supply is being met with strength from principal and reinvestment dollars that are high over the next few months, combined with the steady beat of inflows. While inflows theoretically track factors such as relative value, recent returns, and taxable-equivalent yields, we can’t help but think that some muni demand may be secular, driven by the massive wealth accumulated by an aging population and rising and progressively-structured tax rates in already-high tax jurisdictions.
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