Bond  yields across major markets trended higher in July. The yield on the benchmark 10-year US Treasury rose by 15 basis points in July, closing at 4.38%. In Europe, 10-year yields also moved higher: Germany by 9bp to 2.69%, the UK by 8bp to 4.57%, and France by 6bp to 3.35%.

The 1 August 2025 US tariff deadline prompted a rush in July for countries to secure trade agreements with the United States. Several major economies, including the European Union (EU), Japan, and South Korea, successfully concluded deals. July brought notable monetary policy updates across major economies. In the United States, the Federal Open Market Committee (FOMC) left interest rates unchanged. The decision was not unanimous, however, with two governors favouring a 25-basis-point cut. On the outlook for September, Fed Chair Jerome Powell remarked, “We have made no decisions about September.”

The European Central Bank’s (ECB) Governing Council also kept policy rates steady, with inflation now at its 2.0% target. However, it warned that “the environment remains exceptionally uncertain, especially because of trade disputes”, a comment made prior to the completion of the US–EU trade agreement.

In the Far East, the Bank of Japan (BOJ) unanimously maintained its policy stance, in line with market expectations. It also raised its medium-term CPI forecasts, reinforcing the view that underlying inflationary pressures remain persistent.

In the US, PCE is tracking ~2.9–3.0%, down from 3.5% last year, reflecting sticky but stable inflation pressures above the Fed’s 2% target. Services inflation (healthcare and  shelter) remains persistent, with shelter inflation up 3.9% YoY. Tariffs on autos, pharma, and consumer goods pose modest upside risks. While slowing, consumption remains a key driver with resilient services spending offset by weaker goods demand amid higher rates and softening labour momentum. Business investment is uneven, with AI-related capex providing targeted support while more broader capex slows.

Technical factors such as elevated supply, lack of foreign absorption and lack of any QE/Fed backstop, led to the term premium continuing to rise and this may not be fully compensating for inflation/fiscal uncertainty. The US deficit remains ~7–7.5% of GDP, with net Treasury issuance projected above $3.4T in 2025, sustaining a structural supply overhang. Elevated coupons, continued QT, and persistent issuance pressures maintains upward pressure on term premiums and long-end yields.

US EBITDA margins rose further to 32.0%, marking a four-year high, while 72% of investment grade issuers posted YoY EBITDA gains in Q1 2025. Aggregate revenues rose 2.9% YoY, a slight uptick vs Q4 2024. Q2 topline growth may slow modestly as revisions trend lower, while margin guidance remains resilient despite macro crosswinds. Limited near-term refinancing risk remains, with <7% of IG debt maturing in 2025 and 75% of the universe clear until 2026+.

The spread per unit of leverage remains low at ~30 bps, below the historical range (40–45 bps), indicating limited compensation for modest credit deterioration or macro weakening. This emphasises the need for disciplined allocation. On a net basis investment grade (IG) supply is down ~20% YoY, driven by elevated maturities, robust coupon payments, and cautious refinancing at elevated yields. Issuer discipline and the upcoming net negative supply environment in H2 2025 provide technical tailwinds.

High yield revenue grew ~1.8% YoY in Q1/25, moderating from 2.6% in Q4 2024, while EBITDA rose ~2.9% excluding energy. Sectors tied to domestic services and non-cyclicals continue to outperform, while discretionary sectors soften. ~61% of issuers beat EBITDA expectations in Q1, reflecting softening breadth. Interest coverage declined to ~3.8x, the lowest since Q2/2021, reflecting higher funding costs and softer EBITDA growth. Recent refinancing activity has locked in 300–400 bps higher coupons, particularly in B/CCC names now refinancing at 8.0–11.0% coupons, pressuring coverage lower. The spread per unit of leverage has declined further to ~75 bps, consistent with late-cycle tightness, last seen in late 2021. High yield (HY)  ETFs recorded $9.8B in net inflows YTD (as of June 30), a slower pace than Q4 2024, but consistent with steady institutional and retail demand for yield. Inflows remain focused on BB and higher-quality B credits, reflecting cautious positioning within HY allocations.