Several central banks in advanced economies convened monetary policy meetings in September. In the United States, the Federal Reserve lowered its policy rate by 25 basis points, aligning with market expectations. The move reflected mounting concerns about labour market conditions, following a weaker-than-expected jobs report that pointed to softer hiring demand and a modest rise in the unemployment rate. Elsewhere, major central banks adopted a more cautious tone. The European Central Bank kept interest rates steady but reiterated its commitment to maintaining restrictive policy settings until inflation shows clearer signs of returning to target. The Bank of England also held rates unchanged, balancing persistent services inflation against slowing economic activity. Collectively, the September meetings highlighted a shift among advanced economy central banks toward a more data-dependent and balanced policy stance.

Bond yields declined across most developed markets in September. In the United States, the yield on the benchmark 10-year Treasury fell by 8 basis points to end the month at 4.15%. In Europe, 10-year government bond yields eased slightly, declining by 1 basis point in Germany to 2.71% and by 2 basis points in the United Kingdom to 4.70%. In contrast, France’s 10-year yield edged up by 2 basis points to 3.53%, reflecting minor country-specific factors amid otherwise subdued global bond market movements.

In the US, Core PCE is tracking ~2.9%, down from ~3.0% last quarter, indicating gradual disinflation. Goods prices remain in deflationary territory, but services inflation persists, driven by healthcare, insurance, and shelter. The key risk remains tariffs, potentially lifting inflation back above 3.5% and challenging the Fed’s easing path. Labour markets are softening (unemployment 4.3% and wage growth 3.9%) but not collapsing. The fiscal backdrop is heavy as the US deficit is forecast at ~5.5-6% of GDP with $2T net issuance this year, creating structural supply pressure. Treasuries look attractive on a historical basis specififcally the yied on the 10 year. The 7–10 year part of the curve is showing buy signals across all timeframes, though is stretched in the short-term. The front end of the curve provides good carry with cooling inflation, while the long end will be under pressure from quantitative tighening and issuance.

Investment grade (IG) credit is a carry trade and not a valuation play as spreads are tight, so selectivity and quality matter most. EBITDA grew + 4.1% YoY (+8.1% ex-commodities), driving margins to ~32.3%, near post 2022 highs. While topline momentum is softening rising +2.9% YoY, cost discipline and sectoral pricing power underpin resilient margins. IG composition is healthier than previous cycles, reducing systemic downgrade risk. Dispersion between sectors is widening as discretionary and industrials face margin pressure, while defensives (staples, healthcare and utilities) maintain strong balance sheets. Balance sheets are generally healthy: leverage stable (A ~1.5x, BBB ~3.2x); refinancing risks are low (<7% of IG debt matures before 2026). IG spreads sit close to multi-decade tights and well below the five year average. The BBB/A spread ratio is compressed at 1.46x (vs stress levels>1.7x), underscoring market confidence but leaving little margin for error. Absolute momentum remains strong, though weekly signals look overbought. Net IG supply is down ~18% YoY, driven by lower issuance and strong coupon flows. Issuer discipline and net negative supply in H2 2025 provide a technical tailwind.

High yield (HY) offers a strong carry but again offer little margin for error with defaults low, but risk is clearly underpriced. Aggregate HY revenue grew +1.2% YoY in Q2, with EBITDA ex-energy +2.0% both decelerating from Q1. The market breadth is weakening, with fewer issuers exceeding earnings expectations compared to earlier in the year. Domestic services and non-cyclicals maintain stable trends, while discretionary sectors soften. HY refinancing activity slowed over the quarter following record issuance earlier in the year. BB-rated issuers remain well-termed out with no material maturities until 2027–2028, while CCCs face a concentrated 2026 maturity wall. The spread-to-leverage tradeoff remains tight at ~74bps per turn, well below the historical averages. Investors are being undercompensated for late-cycle risks, particularly in lower-quality Bs and CCCs. HY remains in a strong positive trend across daily, weekly, and monthly technical signals. However, weekly momentum indicators suggest overextension, reinforcing that HY is now primarily a carry harvesting play.