Market Commentary: September 9, 2026

John F. Thomas, CFA
Vice President, Fixed Income Portfolio Manager
jthomas@haverfordquality.com

Hut, Hut, Hike?

As the NFL season kicks off, investors are also awaiting an important play call from the Federal Open Market Committee. At its meeting on September 15 and 16, the Fed must decide whether recent inflation progress is sufficient to keep rates unchanged or whether a rate hike is needed. Chairman Kevin Warsh’s remarks from Jackson Hole reinforced the Fed’s commitment to its 2% inflation objective when he stated “We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.” His comments were followed the next week by strong jobs payroll numbers, which prompted markets to give greater odds to a September rate increase. Currently, the probability of a hike is not much higher than a coin toss, but this week’s Consumer Price Index (CPI) and Producer Price Index (PPI) data will likely be key to the Fed’s decision. 

Regardless of the call, we see several fixed income themes that remain important: 

• Inflation protection remains useful. Short-maturity Treasury Inflation-Protected Securities (TIPS) can provide a measure of inflation protection without assuming the greater interest rate volatility associated with longer maturities. 

• Floating-rate exposure can support income. With the possibility of additional tightening still in the playbook, high-quality floating-rate securities may offer attractive income with limited duration sensitivity. 

• Mortgage-backed securities continue to offer relative value. Current-coupon agency mortgage-backed securities can provide yields that compare favorably with many intermediate corporate bonds, particularly while corporate spreads remain tight. Elevated mortgage rates have also reduced refinancing incentives, which can support the sector’s income profile. 

• Duration modestly above the benchmark. Our portfolios are modestly longer in duration than the benchmark Bloomberg Intermediate U.S. Government/Credit Bond Index. We increased our 10-year Treasury exposure in May after the 10-year yield broke well above 4.5%, viewing that level as an attractive opportunity to add high-quality duration and income. However, we remain underweight in Treasury exposure relative to the index. 

• Corporate spreads can stay tight. Though corporate spreads have been near historic tights for most of the year, meaning the difference in yield for corporate bonds relative to safe-haven Treasuries has been historically narrow, they can trade at tight levels for years. The average corporate spread over the entire 1990s was +85 basis points (bps), and the current level is +80 bps. We remain comfortable with our modest overweight to corporate bonds and the balance sheet health of the issuers. 

The long end of the Treasury curve also has a new factor to consider. In August, the Treasury Department announced that it would at least double the size of liquidity support buybacks in the 10- to 20-year and 20- to 30-year sectors, increasing the maximum to at least $4 billion per operation from $2 billion. The roughly $16 billion per quarter of potential purchases from the Treasury is a far cry from the $80 billion a month that the Fed purchased during its pandemic quantitative easing (QE) efforts. Market participants may view the initiative as an effort by Secretary Scott Bessent to keep a lid on longer-term yields, but the impact should be substantially less than that of QE. Also, the rise in yields has been a global phenomenon, driven by supply shocks from the Iran conflict, hawkish pivots from other central banks, fiscal concerns from growing government deficits, and record corporate issuance driven by the hyperscalers. 

In addition to our focus on intermediate bonds to avoid long-end volatility, we continue to emphasize diversification, high credit quality, attractive income, and carefully selected exposures beyond the benchmark. Short TIPS, floating-rate securities, mortgage-backed securities, and a modest extension in Treasury duration each serve a distinct portfolio purpose. 

The September decision may feel like opening day, but one game does not make a season. Whether the Fed hikes or holds rates, the market will be eager to hear more about its future game plans.