Global Fixed Income: Outlook & Strategy
June 2026
The establishment employment release on June 5, 2026 was impressively strong.
Market Recap & Outlook
The establishment employment release on June 5, 2026 was impressively strong. The May increase of 172,000, along with up-revisions to prior months, brought the three-month average monthly gain up to 188,000. This is a jobs boom. Wage inflation, measured by average hourly earnings, remained impressively stable at 3.4% year-over-year. NASDAQ then celebrated this tasty cocktail of great job growth and low wage inflation by falling 4%. What?
NASDAQ is a growth equity index. The NASDAQ 100 trailing P/E is about 35; its forward P/E is about 27. Investors are optimistic that these companies can grow rapidly, producing massive future profits. Current equity valuations depend on future earnings and cash flows as well as the interest rate used to discount them to a present value. The strong jobs data increased the probability that the next Federal Reserve (Fed) policy move will be a hike, rather than a cut, so the discount rate used to value these equities is being pressured upwards. Growth equity is a long duration asset.
The job of the Fed is arguably to minimize misery. The misery index, coined by Arthur Okun back in the Johnson Presidency, is the sum of the inflation and unemployment rates. It is also the basis of the Taylor Rule for Fed policy, in which the interest rate is set to minimize the gaps between target inflation and target unemployment rates. The futures market for the SOFR policy rate is our best predictor for future Federal Reserve policy as it captures the current collective expectations of investors. SOFR futures therefore react to changes in the inflation and labor market outlooks.
Until Friday, June 5, 2026, most of the change had been in inflation, where we have seen a series of upward shocks, mostly having to do with the new Gulf War, along with demand pressures on electricity, chips, etc., from the AI server cap-ex boom. Now we seem to have killed off any hopes that labor market weakness might provide an offset.
Our Strategy
For now, we expect the Fed to hold interest rates steady. Headline Consumer Price Index (CPI) is expected to breach approximately 4% later this week, although the oil effects may be transitory. Nonetheless, the risks of a policy hike have risen as the labor market has tightened. Labor demand seems to be improving while labor supply is flat. If wage inflation begins to rise once more, then we would expect the Fed to respond, in our view. SOFR futures markets now believe that the probability of a future hike is greater than a future cut. We agree. We believe the economy and especially earnings, seem to be growing too strongly for wage inflation to remain as well-behaved as it has been, unless AI productivity gains can somehow offset these pressures. This is not a background for a bond market rally, in our view.
Important Disclosures
Key Risks: Credit Risk, Issuer Risk, Interest Rate Risk, Liquidity Risk, Non-US Securities Risk, Currency Risk, Derivatives Risk, Leverage Risk, Counterparty Risk, Prepayment Risk and Extension Risk. Investing involves risk including possible loss of principal.
This marketing communication is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of Loomis, Sayles & Company, L.P. Investment recommendations may be inconsistent with these opinions. There is no assurance that developments will transpire as forecasted and actual results will be different. Data and analysis does not represent the actual or expected future performance of any investment product. Information, including that obtained from outside sources, is believed to be correct, but Loomis Sayles cannot guarantee its accuracy. This information is subject to change at any time without notice. Market conditions are extremely fluid and change frequently.
Market conditions are extremely fluid and change frequently.
Diversification does not ensure a profit or guarantee against a loss.
Any investment that has the possibility for profits also has the possibility of losses, including the loss of principal.
There is no guarantee that the investment objective will be realized or that the strategy will generate positive or excess return.
Past market experience is no guarantee of future results.
For Institutional Use Only. Not For Further Distribution
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Explore Past Outlooks
Below are the recent outlooks and strategies published by members of the team.
May 2026
With the US-Iranian ceasefire extended, investors have moved from the fog of war to the fog of truce.
April 2026
An announced two-week cease-fire in the US-Iranian war has been greeted with joy by global risk markets.
March 2026
This US administration has decisively broken with past American grand strategy.
February 2026
Volatility, J.P. Morgan’s Jan Loeys once wrote, is “leverage times surprise.”
January 2026
We enter 2026 with a broadly neutral view of global duration, a cautious view of global corporate spreads, and a bearish view of the US dollar.
December 2025
Markets may be able to celebrate a quiet holiday season.
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