The US bond market weekly update: September jeopardy—the Fed, CPI and volatility

Fixed income offers attractive strategic value despite near-term uncertainty over the Fed, inflation and September market volatility.

• August employment increased by 162,000, while upward revisions to June and July added 55,000 jobs; payroll growth has averaged about 80,000 this year and wage growth has moderated to 3.1% year over year.
• The September 16 FOMC meeting hinges on CPI: firmer inflation could cement a hike, while softer data would leave the decision finely balanced; market pricing has remained near 60%.
• September has been the weakest month for equities since 2000, with the S&P 500 averaging a 1.4% decline versus an approximately 0.8% gain in the other 11 months.
• Midterm-election years have historically produced intra-year drawdowns of about 17–18%, often with market lows between August and October; more than $200 billion of corporate issuance and tight spreads could amplify volatility across equities and credit.
• Schroders has no strong directional view on rates, but starting yields are attractive, real yields are near their highest level in 15 years, and the narrow equity risk premium supports bonds relative to equities.

Takeaway: Investors should favor carry, selective duration and curve steepeners rather than a broad rates position, with agency MBS, taxable municipals and selected emerging-market debt preferred over expensive broad corporate credit.