Muzinich Weekly Market Comment: Be aware of rising rates

September 1, 2026

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As August draws to a close, it is seasonally the peak of the Northern Hemisphere summer lull – a period when markets are normally characterized by thin liquidity, sluggish price action and sparse news flow. Yet it is often in these quiet periods that patterns form, as the paths of least resistance are revealed, setting the tone and direction for the final quarter.

In fixed income, government bonds underperformed their corporate credit peers, a trend we expect to continue. On the economic front, robust activity data across the globe drove growth upgrades, while the disinflation trend lost momentum over the summer and is now showing tentative signs of picking up.

Japan was the worst-performing bond market in August after the Bank of Japan (BoJ) hinted it could accelerate policy normalization as early as September, against a consensus that had looked to December for the next adjustment. Overnight index swaps (OIS) now imply an 85% probability of a 25-basis point (bps) hike in September.^[1]

In Europe, the long end of the curve underperformed, with fiscal tolerance as the dominant concern. This was seen most clearly last week, with France's first presidential election debate consumed by bickering over how to deal with the country's rising indebtedness and the urgency of narrowing the budget deficit.^[2] Investors are unanimous that the European Central Bank (ECB) will tighten by 25bps in September. The real debate is whether this is the final adjustment. For now, OIS pricing implies a further 25bps hike, to 2.75%, in March 2027.^[1]

In the US, officials were decidedly not on holiday, and dominated the month's narrative, as investors had to adapt to the new style of Federal Open Market Committee (FOMC) Chair Warsh, who is hawkish leaning, with an explicit preference for constructive ambiguity in policy communication and for letting the market do the committee's work for it. At the same time – and on a collision path with the committee –Treasury Secretary Bessent is trying his utmost to cap US government bond yields or at least slow their rise. If August were the scorecard, Bessent won the day, with US rates outperforming and the curve bull-flattening slightly. The OIS market continues to expect no policy adjustment until December 2026.^[1]

In corporate credit, high yield outperformed, buoyed by strong earnings, growth upgrades and a light supply calendar, which together pushed spreads tighter. Meanwhile, US dollar-denominated investment grade benefited from the fall in Treasury yields. We continue to believe the short end of emerging market (EM) debt and high yield offer a constructive way to position for the final quarter of 2026.

In commodities, oil remains the most closely watched market and a bellwether for the Iran situation. Brent crude is broadly unchanged from the end of July, a fair assessment of how negotiations are progressing. On the positive side, Iran and Oman have edged towards an interim agreement on managing shipping through the Strait of Hormuz, and it was reported by The New York Times that the US State Department was preparing to send diplomats back to the region.^[3] However, a long-term agreement between Iran and the US appears dead in the water for now.

The fact that crude is not setting new highs also gives clear insight that, regardless of the diplomacy, oil is still flowing through the Strait –by our estimates at between 5 and 9 million barrels per day.^[4] Meanwhile, Treasury Secretary Bessent said the US had guided 130 million barrels out through Hormuz over the past 14 days.^[5]

Away from crude, and possibly overlooked by investors fixated on oil, gas may offer better clues as to what is in store for the final quarter. Gas prices across Asia and Europe have doubled since the start of the Iran conflict. The Hormuz supply shock is the dominant factor, but residual Russian risk and the prolonged extreme heat across Europe in June and July lifted air-conditioning demand.

In food markets, wheat and corn prices rose to their highest levels in over three years. Strikes between Russia and Ukraine have caused major disruption to both countries' grain exports over recent weeks, adding to an already challenging backdrop for agricultural prices that have been under pressure from the emergent El Niño, this summer's drought across Europe and the disruption to fertilizer exports out of the Gulf.

In metals, gold had its best month since 1999, while industrial metals sit close to record highs. Copper reached US$14,300 a ton in London and is on track for a ninth consecutive weekly gain, the longest such run since 2020.^[6] Short-term supply disruptions have dominated price action. Putting the commodity pieces together, the signal is clear: investors should not underestimate the build-up of inflationary pressure from raw materials.

The signal from currency markets was one of US weakness, with the US dollar depreciating against every G10 currency except, interestingly, the Japanese yen – after investors pushed back against coordinated intervention – and against most EM currencies as well. One theory circulating is that if US Treasury yields are going to be capped, investors must be compensated by being able to buy US assets more cheaply. A weaker US dollar allows them to buy more per unit of domestic currency. However, rate differentials are the more grounded rationale. The FOMC is not expected to adjust policy until December, and even that is hotly debated, while a string of central banks is now expected to move before the Federal Reserve, including the BoJ, the majority of Asian central banks and the ECB. The Bank of Korea hiked to 3% last week, with the Korean won being one of the strongest currencies in August, appreciating almost 5% against the US dollar. Maybe Asian central banks have one eye on commodity input prices.

Equity markets saw a melt-up, with the Bloomberg World Large & Mid Cap Index up over 3% in August as technology came back into favour. Indices heavily weighted towards technology outperformed on the month, with confidence returning after a weak July. Sentiment significantly improved after Nvidia, the chipmaker at the heart of the artificial intelligence boom, said revenue will grow around 70% next fiscal year, easing concerns that AI spending is poised to lose momentum. The projected sales growth for fiscal 2028 outstrips analysts' estimates of a 45% jump, according to data compiled by Bloomberg.^[7]

Looking deeper, something more interesting emerges. Year-to-date, the Russell 2000 Value Index, which has only around 5% allocated to technology, has outperformed both the Nasdaq and the S&P 500.^[8] This is exactly what we would expect in the environment we have described, one of hiking central banks, commodity prices at multi-year highs and stalling disinflation. The index is heavily weighted towards financials, energy and materials – the sectors that benefit most from precisely those conditions.

As for market sentiment, our preferred gauge, the VIX, is now below 15, an indication that all is well, uncertainty is manageable, and investors are confident about the near future. Perfect timing, given that September is seasonally one of the more difficult months of the calendar year. Outside commodities and the US dollar, it has been hard to make a total return over the past ten Septembers, as the table below shows (see Chart of the Week). Reviewing the root cause of that poor performance, the common denominator is rising government bond yields.

Chart of the Week: September Seasonality

Source: Bloomberg, as of August 28, 2026. Muzinich views and opinions are subject to change. For illustrative purposes only, not to be construed as investment advice or an invitation to engage in any investment activity.

Past performance is not a reliable indicator of current or future results.

References to specific companies is for illustrative purposes only and does not reflect the holdings of any specific past or current portfolio or account.

References

[1] Bloomberg, as of August 28. 2026
[2] Bloomberg, “France’s Debt Difficulties Dominate First Presidential Debate,” August 27, 2026
[3] The New York Times, “U.S. Said to Be Returning Diplomats to Middle East Embassies,” August 25, 2026
[4] Muzinich Weekly Market Comment, “August Lull,” August 17, 2026
[5] Bloomberg, “US Commander Declares Hormuz Shipping Langes Are Mine-Free,” August 27, 2026
[6] Bloomberg, “Copper on Cusp of Record High Heads for Ninth Weekly Advance,” August 28, 2026
[7] Bloomberg, “Nvidia Sees AI-Fueled Demand Boosting Sales 70% Next Year,” August 27, 2026
[8] Bloomberg, as of August 28, 2026

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed by Muzinich & Co. are as of August 28, 2026, and may change without notice. All data figures are from Bloomberg, as of August 28, 2026, unless otherwise stated.

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