Keep Calm and Clip Coupons

Coming into 2026, we expected inflation to move closer to the Federal Reserve’s (Fed) 2% target, the Fed to cut rates by roughly 75 basis points (bps), and Treasury yields to drift lower. Instead, the first half delivered three stress tests in rapid succession: a leadership change at the Fed, a geopolitical shock that sent oil prices and yields surging, and an AI buildout that is having a measurable impact on the corporate bond market — with the Fed leadership transition among one of our key themes for the balance of the year. While these tests are likely to linger throughout the rest of 2026, starting yields are still comfortably above their long-term averages. At current yields, carry alone offers a meaningful cushion, allowing bond investors to keep calm, collect coupons, and carry on. Here, we discuss the fixed income market landscape and our expectations for the second half, as covered in our Midyear Outlook 2026: Policy, Buildouts, & Bottlenecks.