Interest Rates

Repo rates have continued to trend lower within the Federal Reserve’s target range since 4Q 2025, reflecting evolving reserve conditions and policy implementation dynamics. The Treasury General Collateral Rate (TGCR) traded near the lower bound in May, a notable shift from as early as December, when rates were elevated and, at times, above the upper bound. This evolution is consistent with our prior expectation that Reserve Management Purchases (RMPs) of T-bills would place downward pressure on repo and other money market rates.

Alongside RMPs, money market fund inflows have further softened repo conditions by increasing demand for short-term collateralized investments. While the Federal Reserve has recently reduced the pace of RMPs to $10 billion per month, the cumulative impact of prior purchases continues to support repo and T-bill markets. As a result, fourth quarter funding pressures have calmed meaningfully.

We expect money market rates to remain broadly range bound, centered around the middle to lower half of the target range, anchored by the balance of reserve supply and demand alongside sustained T-bill demand.

— Dan LaRocco, Head of U.S. Liquidity, Global Fixed Income

• Repo rates have declined meaningfully, with TGCR recently trading near the lower bound of the target range.


• RMPs and money fund inflows have contributed to lower repo and money market rates. 


• Looking ahead, we expect rates to remain range bound, skewed toward the middle to lower half of the target range.

Credit Markets

Risk assets continued to perform well in May, even against a backdrop of rising interest rates and geopolitical volatility. The S&P 500 Index gained 5.3% for the month, capping one of its best two-month periods in history. Evolving monetary policy expectations and inflation concerns drove a repricing of Treasuries, pushing yields higher across the curve. Credit markets generated solid returns, driven by coupon income, with the high yield bond market gaining 0.5% as spread tightening offset the drag from rising Treasury yields.

The distressed universe within high yield, defined as bonds trading at spreads above 1,000 basis points, has contracted sharply. Often viewed as a forward-looking default indicator, given that bonds trade to recovery value ahead of actual events, the decline in the distressed ratio is notable. The universe now stands $79 billion below its June 2022 peak and has fallen $41 billion, or 37%, from its April 2025 high. Cable and satellite issuers account for the largest share at 29%, followed by technology at 15% and healthcare at 10%.  

— Ben McCubbin, Co-Head of High Yield, Global Fixed Income

• Risk assets continued to perform well in May, despite rising interest rates and continued conflict in Iran.


• The distressed bond universe is $79 billion below June 2022’s peak and -$41 billion (-37%) from its 2025 peak.


• Cable/Satellite accounts for 29% of distressed bonds, followed by Technology (15%) and Healthcare (10%).

Equities

Technology’s weight within global equities continues to rise, but the move has been far more pronounced in emerging markets (EM). Information Technology now exceeds 40% of the MSCI Emerging Markets Index, driven by strength in semiconductor and hardware leaders. Taiwan Semiconductor Manufacturing represents roughly 13% of the index, with Samsung Electronics and SK Hynix near 7% each, underscoring the growing concentration of EM equity exposure in a small set of AI‑linked names.

This reflects a shift away from a narrow software-led cycle toward deeper integration across semiconductors, hardware, and digital infrastructure. The result is a widening gap versus developed markets, with EM becoming increasingly tech-heavy.

Earnings growth and AI-driven investment remain supportive, though leadership remains concentrated. With recent volatility helping to moderate excesses, we maintain a balanced and disciplined stance, keeping allocations steady while monitoring for broader participation and evolving macro risks.

— Jordan Dekhayser, Senior Equity Client Portfolio Manager & Daniel Kim, Associate Equity Client Portfolio Manager

• MSCI EM Information Technology’s weight has surged from ~23% to 43% over the past year, well above ACWI's 31.5%.
  
  
• This reflects the growing dominance of semiconductor and hardware leaders in EM.
  
  
• The gap underscores rising concentration risk, with EM structurally more tech-heavy than ACWI, even as AI-driven earnings and investments support the trend.

Real Assets

The shale revolution has significantly expanded U.S. energy supply, making the country one of the world’s most abundant and resilient energy producers. Yet electricity prices have risen meaningfully in recent years, highlighting a key imbalance: demand is outpacing the system’s ability to deliver power efficiently and reliably.

Rising prices often reflect infrastructure constraints rather than true scarcity. The grid has not kept pace with shifting demand patterns or geographical load shifts. Limitations in moving electricity are compounded by shortages of critical equipment, including turbines and transformers, as well as bottlenecks in natural gas pipelines and storage. These pressures stem from a structural shift in demand. After decades of flat consumption, the system was unprepared for rapid growth driven by the “electrification of everything.” Data center expansion, fueled by a more data-intensive economy and AI adoption, has added further strain.

The U.S. has ample energy resources, but without sustained investment in generation, transmission, and delivery systems, affordability and reliability will remain under pressure.                    

— Jim Hardman, Head of Real Assets, Multi-Manager Solutions

• Electricity prices have risen as demand outpaces the system’s ability to deliver power.
  
  
• Rapid growth from electrification and data centers has exposed weakness in transmission and supply systems, leaving affordability and reliability under pressure.
  
  
• We affirm a tactical overweight to global listed infrastructure on compelling fundamentals and accelerating earnings due to rising demand.