As of late September, credit markets continue to offer historically elevated yields, even as spreads tighten across much of the landscape. This reflects strong investor demand for income alongside a willingness to accept lower compensation for taking on risk, which seems to be a theme over the last few quarters

Municipals stood out again this month with a favorable dynamic between yield and relative value. Investment grade munis (IG muni) offered a tax-equivalent yield-to-worst (YTW) of about 6%—slightly lower than the previous month. IG munis still place above their historical range. Spreads tightened again this month from 159 basis points (bps) in August to 138 bps in September, suggesting resilient demand even while yields edge down. As for high yield munis (HY muni), a similar case is found with tax equivalent YTW held at roughly 9% and spreads tightening slightly. Short duration high yield munis (SDHY muni) saw yields remain relatively unchanged, and spreads tighten by 28 bps.¹

The more cyclical parts of the credit markets showed mixed changes. Triple C rated high-yield corporate bonds held yields at roughly 10%, though spreads widened modestly to from 579 bps to 616 bps. In a similar fashion, leveraged loans offered yields around 8%, with spreads widening slightly. Meanwhile, securitized assets, such as asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS), showed limited change, with spreads hovering near long-term averages.²

Overall, the persistence of elevated yields alongside tightening spreads highlights a market in which holding bonds for income remains compelling, but selectivity is key as the extra cushion investors get from spreads has shrunk. Municipals in particular appear favorable, offering not just competitive after-tax income but also potential diversification benefits tied to essential service issuers.

Gold’s strong third quarter has persisted into the fourth, and on October 7 the price of the metal eclipsed the psychological threshold of $4,000/oz for the first time ever.¹

Up about 50% year to date, the gold price is climbing at a rate not seen since 1979, a year in which gold increased 144% amid a backdrop of double-digit inflation rates, a weakening dollar and geopolitical flashpoints that included the Iranian revolution and the Soviet invasion of Afghanistan.²

Investors have their own unique convergence of concerns to reckon with today, including high sovereign debt levels, monetary policy uncertainty, attacks on Federal Reserve independence, disruptive trade policy, shifting fiscal policies and heightened local and geopolitical tensions. A range of market participants have turned to gold in response to the uncertain backdrop. Net purchases of gold by global central banks have been running at very high levels since 2022, if slowing somewhat in the face of record-high nominal prices, and demand for physically backed gold exchange-traded funds (ETFs)—which capture investment demand from both institutional and individual investors—has picked up meaningfully this year.³

While gold’s rally over the past 18 months has been impressive, trees don’t grow to the sky. In our view, the key risk to the gold rally at this point is the potential for recession. While recessions historically have been positive for the price of gold over the medium to long terms, the onset of economic contraction can have negative implications. We saw this during the brief but sharp Covid-related recession in 2020 as well as 2008–09 recession associated with the global financial crisis. In both instances, however, gold’s value as a potential hedge against adverse events ultimately reasserted itself after an initial period of price weakness.