Duration Dashboard

The week's defining moment arrived Tuesday morning when May's Consumer Price Index registered just 0.1% monthly growth, matching the smallest increase since December 2023 and bringing annual inflation to 2.4%—tantalizingly close to the Fed's 2% target. This benign reading, reinforced by Wednesday's identical 0.1% Producer Price Index print, triggered an immediate Treasury rally that saw the 10-year yield touch 4.36% intraday before stabilizing. Yet despite the inflation relief, the curve's bear steepening dynamic—with the 2s30s spread widening 4 basis points to 99bp—revealed that fiscal concerns and heavy long-end supply continue to pressure duration even as near-term rate cut expectations build.

Credit Pulse

Credit markets operated in rarefied territory throughout the week, with investment grade spreads holding steady at 81 basis points—a level residing at just the 29th percentile of the 5-year distribution—while high yield compressed further to 290bp, marking the 23rd percentile. This persistent spread compression occurred despite a nearly 2-point jump in the VIX to 19.11, suggesting credit investors remain remarkably sanguine about default risk even as equity volatility increased. The disconnect between historically tight spreads and rising volatility metrics created a fascinating divergence that typically resolves through credit widening, though strong technicals from $149 billion in June investment grade issuance meeting robust demand kept spreads anchored.

Primary Market Dynamics – Supply Creating Its Own Demand

The corporate bond market witnessed extraordinary technical dynamics during the week as June's $149 billion investment grade issuance calendar—on track to be the second-largest monthly total in history—met with voracious demand that kept new issue concessions near zero. This supply tsunami, contributing to Q2's robust $426 billion total that exceeded prior year by 5%, should have pressured spreads wider; instead, the wall of new paper was absorbed instantly by yield-starved investors desperate to lock in all-in yields before anticipated Fed cuts. The phenomenon of supply creating its own demand reached absurd levels Thursday when a $4 billion Apple deal was 8x oversubscribed despite pricing through fair value.

Sector dynamics revealed clear winners and losers in the primary market derby. Utilities led with 18% year-over-year issuance growth, driven by insatiable capital needs for data center expansion and grid electrification—themes that resonated with ESG-conscious allocators. Energy lagged with just $12 billion in June issuance as recession fears and volatile oil prices kept investors wary. Financial issuers capitalized on tight spreads to term out funding, with banks issuing $38 billion during the week including a massive $6 billion JPMorgan deal that priced at just +65bp over Treasuries. Most remarkably, foreign demand accounted for 42% of allocations in deals with available data, highlighting how negative rates in Europe and Japan continue driving international buyers into US credit despite currency hedging costs that erode much of the yield advantage.

Week Ahead: Key Data and Events

Markets face a data-heavy calendar with May retail sales (June 18) expected to show -0.2% decline as tariff front-loading exhausts, while housing starts (June 19) face headwinds from 7%+ mortgage rates and elevated construction costs. Fed speakers including Williams (Monday), Bowman (Tuesday), and Barkin (Thursday) will parse CPI implications for September policy, with particular focus on whether June's inflation relief marks a turning point or temporary respite. The expiration of the 90-day tariff pause on July 9 looms as the next major catalyst, with preliminary trade talks scheduled for the final week of June potentially setting the stage for either extension or escalation.

US Economic Positioning and Global Context

America's economic exceptionalism faced its most serious test of 2025 as global central banks diverged dramatically from Fed policy, creating unprecedented cross-currents in currency and bond markets. The European Central Bank's eighth consecutive rate cut to 2.00% on June 11, even as President Lagarde declared the easing cycle "nearing its end," highlighted Europe's growth struggles while the Bank of Japan's aggressive tapering of bond purchases—reducing monthly JGB buying from ¥4.1 trillion to a planned ¥2.1 trillion by Q1 2027—signaled Tokyo's confidence in finally escaping deflation's grip after three decades.

Dollar dominance questions multiply: The week exposed growing international discomfort with dollar hegemony as gold prices pushed above $3,280 per ounce, gaining 26% year-to-date in a clear vote of no-confidence in fiat currencies broadly. China's measured response to maintaining the 30% total tariff burden through the 90-day pause period, rather than escalating, suggested Beijing was playing a longer game—accumulating gold reserves, expanding yuan settlement agreements, and building alternative payment infrastructure through its digital currency initiatives. For US fixed income markets, this gradual diversification away from dollars translates into a slow-burning reduction in the structural bid for Treasuries that has suppressed yields for decades. The 10-year's persistence at the 90th percentile of its 5-year range, despite benign inflation data, may reflect this evolving reality where foreign central banks no longer reflexively recycle surpluses into US government debt. Credit markets' historic spread compression amid these tectonic shifts suggests dangerous complacency about a world where the Fed's every move no longer dictates global financial conditions.