View from the Observation Deck

Today’s blog post is intended to provide insight into the movement of bond prices amidst the current investment climate and prevailing interest rate policy. Aside from the most recent data, other dates in the chart are from prior posts we’ve written on this topic. Click here to view our last post in this series.

Seven of the eight bond indices we track saw prices increase since 5/22/25.

In our last post, we cited disruption from tariffs as a central catalyst to declining fixed income prices. A recent flurry of trade deals, including the most recent with the European Union, appear to have given investors relief from these concerns. Notably, prices for all but one of the indices in today’s chart have increased since 5/22/25, with six of the eight categories seeing prices increase to the highest of the three observation dates on 7/25/25.

Inflation ticked up in June.

Inflation, as measured by the trailing 12-month rate of change in the Consumer Price Index (CPI), stood at 2.7% in June 2025, up from its most recent low of 2.3% (April 2025). June’s observation pushes the metric even further from the Federal Reserve’s (“Fed”) stated target of 2.0%, which may pose a hindrance to near-term interest rate cuts. That said, the CPI is not significantly elevated when compared to historical averages. The CPI averaged 2.6% (monthly) over the 25-year period ended in June.

Takeaway: Valuations increased in seven of the eight fixed income indices in today’s chart between 5/22/25 and 7/25/25. Several factors, including increasing clarity regarding the potential inflationary impact of U.S. trade policy, likely contributed to higher fixed income prices (declining yields) over the period. Additionally, investors continue to expect lower interest rates by years’ end, despite an increase in the pace of rising prices. As of 7/28/25, the market implied end of year federal funds target rate was 3.89%. In our last post, we noted that Moody’s reduced the U.S. credit rating from Aaa to Aa1 on 5/16/25, reflecting concerns over burgeoning U.S. debt obligations and elevated service payments amidst surging interest rates. With that it mind, we find it noteworthy that long duration U.S. municipal bonds are the only fixed income asset class to have declined since our last post. We plan to update this post with updated information throughout the year.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The Morningstar LSTA U.S. Leveraged Loan 100 Index is a market value-weighted index designed to measure the performance of the largest segment of the U.S. syndicated leveraged loan market. The ICE BofA U.S. High Yield Constrained Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofA 22+ Year U.S. Municipal Securities Index tracks the performance of U.S. dollar denominated investment grade tax-exempt debt publicly issued by U.S. states and territories, and their political subdivisions with a remaining term to maturity greater than or equal to 22 years. The ICE BofA Fixed Rate Preferred Securities Index tracks the performance of investment grade fixed rate U.S. dollar denominated preferred securities issued in the U.S. domestic market. The ICE BofA 7-10 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government with a remaining term to maturity between 7 to 10 years. The ICE BofA U.S. Mortgage Backed Securities Index tracks the performance of U.S. dollar denominated fixed rate and hybrid residential mortgage pass-through securities publicly issued by U.S. agencies in the U.S. domestic market. The ICE BofA U.S. Corporate Index tracks the performance of U.S. dollar denominated investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofA Global Corporate Index tracks the performance of investment grade corporate debt publicly issued in the major domestic and Eurobond markets.

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