Rick Rieder, Blackrock’s major guru of everything fixed income – Blackrock’s Global Chief Investment Officer of Global Fixed Income – holds a brief webinar or conference call (starts at 7 am central, so you have to be an early riser), usually the last Thursday morning of every month, where roughly 25 – 30 pages of great charts and graphs are presented usually on all things capital markets, since the US bond market has been so boring the last 24 – 36 months.
Last week’s presentation spent a lot of time on the bond market, and Rick asked on the call, “Are bonds nearing a critical moment in the next few months ?”
Looking at this chart from p.3 of the July 23rd call Blackrock, look at the right side of the two-tiered page and the trend in core inflation.
The FOMC meets Tuesday and Wednesday of this week, and the FOMC release is due at 1 pm central time on Wednesday, July 29th, 2026.
Here’s the most recent snapshot of the fed funds probability based upon CME fed funds futures. There is 65.8% chance that the fed funds futures remain unchanged as of the Wednesday afternoon release, so you can ignore the mainstream financial media hand-wringing. (See bar chart above.)
The bigger issue is the September ’26 meeting, which indicates – at present – a 57.3% probability of a 25 basis point rate hike. (See bar chart below.)
Let’s see if this changes, after Wednesday’s FOMC release.
What I thought was an important chart for last Thursday morning’s call was p.6 and Rick Rieder’s point about the Fed/FOMC/Kevin Warsh no longer focusing on one single inflation measure going forward. That in and of itself will generate it’s own series of comments and articles in the financial media and the blogs, just because the investment industry has to comment upon everything.
The June ’26 CPI and PCE were both “friendly” numbers to the bond market, and yet the 10-year Treasury yield remains in the proximity of the January ’25 high yield tick of 4.80% – 4.81%.
So where does this leave us today ?
Rick Rieder’s exact quote on the Thursday morning call, found on page 20 of the slide package, was, “…and while public market credit spreads are tight, we think an expanding universe is greatly improving the opportunity for debt investors to diversify to keep income and carry high, and in our view, it may be the best environment for bespoke debt investing in over five years.”
This blog has been over-weight duration for two years now, and it obviously has been a drag on fixed-income returns. The Barclay Aggregate’s total return as of June 30, ’26 was 1.39%, while corporate high-yield hasn’t performed much better. International and emerging markets income have performed pretty well versus the bond market asset classes in the last year, 18 months, but watch the US dollar: the buck’s volatility will have a bigger impact on Non-US, international and emerging market funds, than on equity funds.
Quick summary: Fed funds futures for the Sept ’26 FOMC meeting are looking at a 25 bp hike, which would bring the midpoint of the fed fun ds range from 3.625% currently to 3.875%. For this week’s meeting, don’t expect any hike, but watch the wording of the release.
As the labor market has firmed up, I’ve wondered if Kevin Warsh won’t do 25 bp’s as a “safety” measure and to also assuage some of the criticism around his appointment.
However, as the good country lawyer once said, “I could argue it either way”.
Having 40% of client accounts in fixed-income today seems to have fallen to a popularity level that value investing did in the late 1990’s. Still, you never want to venture too far from the standard practice unless specifically requested by the client.
The fed funds “fut’s” indicate the FOMC will stand pat this week, but let’s see how probabilities change with the September ’26 meeting after the release of the minutes. Many bond ETF’s are getting oversold, and the 10-year Treasury “yield” contract (TNX – traded at the CBOE), is also getting close as well.
The bond market looks to be setting up for a rally in the next week or two, and if yields drop, stocks could find a bid as well.
The big earnings reports this week – Microsoft, (MSFT), Amazon (AMZN) and Apple (AAPL) matter too.
None of this is advice or a recommendation, but only an opinion. Past performance is no guarantee of future results.
Thanks for reading.