Global Fixed Income Report - May, 2026
US Treasuries
The US Treasury market absorbed the dual shock of a hotter-than-expected April inflation print and the installation of a new Federal Reserve Chair. The curve underwent a bearish twist in May, with the 2-year through 5-year maturity repricing higher while the 20-year and 30-year tenors rallied. The 10-year served as the pivot point, unchanged at 4.45%. The 2s10s spread compressed from 50bps to 47bps. Markets have largely abandoned expectations for a rate cut in 2026, and the transition to Chair Warsh introduces new policy uncertainty. Corporate credit spreads tightened 6 bps to 91 bps, reflecting improved risk appetite and a reach-for-yield dynamic.
The defining institutional event of May was the Senate's 54–45 confirmation of Kevin Warsh as the 17th Chair of the Federal Reserve on 13th of May. Warsh's inaugural FOMC meeting is scheduled for June 16–17. The Federal Reserve maintained its policy rate on hold throughout May, with the market pricing in a "higher-for-longer" trajectory at the front end while anticipating eventual
disinflationary convergence at the long end.
The month-to-date regime classification of "High Growth + High Inflation" persisted, supported by resilient labor market data and sticky core PCE readings. The front-end sell-off in Treasuries reflects a repricing of the near-term policy path, with the market pricing out expectations for the first rate cut. Carryover effects from April's firm inflation prints continued to dominate the narrative, keeping the Fed in a data-dependent posture.
Despite interest rate volatility, corporate credit outperformed safe-haven assets. The ICE BofA Single-A US Corporate Index Effective Yield spread over US Treasuries tightened from 97 basis points to 91 basis points. This spread compression indicates a reach-for-yield dynamic rather than a flight-to-quality, with investors moving down the credit curve to capture income in a stable
growth environment.
The inflation trajectory is the central variable for the balance of 2026. If the June CPI print, which is due on the 10th of June reflects a meaningful deceleration driven by the crude oil decline observed in May, the 3–5-year maturity could outperform as markets begin to price back some easing. However, if energy prices stabilise or reverse their May decline, the belly remains exposed.
