JPM High-Yield and Leveraged Loan Morning Intelligence

Research evidence excerpt

JPM High-Yield and Leveraged Loan Morning Intelligence

st to the easing that

was in FOMC projections and market pricing at the start of this year. Resilient US and global growth are

expected to keep core inflation running around 3%ar and produce a rebound in job growth that

supports consumer spending and tightens labor markets. Their forecast for a 3% rise in core PCE

inflation incorporates a 0.22% average monthly gain from June onward as significant import and producer

price pressures point to elevated goods price increases. Additionally, fading caution should push the

unemployment rate to 4% by early next year, 0.3% lower than current Fed thinking. This outcome does

more than short-circuit rate cuts. It should also shake the Fed’s underlying supply-side optimism and

belief that elevated inflation persistence has transitory roots. Higher 1H26 inflation and a recent

hawkish tilt in FOMC rhetoric have prompted a shift in markets, which now price policy rates rise roughly

30bp by year-end. Our colleagues’ forecast is for a more gradual turn toward a Fed hike in 2027. This

has been based on two judgments. First, the 1H26 spike in core PCE to a 4%ar overstates underlying

pressures, and 2H26 will deliver a downshift that preserves transitory beliefs. Second, optimism is slowly

eroding among Fed leadership. Incoming news has not altered their views, but the balance of risks is

shifting in the direction of an earlier hike than expected.

--High-Yield and Leveraged Loan Market Brief: High-yield bond prices declined for a third straight

session on Monday (-$0.04 d/d, +0.04% d/d HYG) alongside a -0.2% loss in the S&P 500 and 4bp rise in

10yr yields amid further escalation in the Middle East and ahead of this week’s earnings. High-yield bond