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Data: ICE BofA via FRED; Chart: Axios Visuals

Financial markets have hit a lot of peaks this year — everything from monster year-over-year earnings, unprecedented fiscal and monetary policy support, and weekly stock market milestones.

Driving the news: Corporate bond prices were no exception — leading to record low yields. But that trend has started to reverse course.

Why it matters: "The bond market is the market of truth. And it's very clearly signaling that we’re hitting peak everything," Steven Boothe, fixed income portfolio manager at T. Rowe Price, tells Axios.

  • In other words, don’t be surprised if market momentum slows down in the second half of the year. "We are going to start coming off some of these peak fundamentals, and I suspect we'll start to come off of peak valuations as well," he adds.

What happened: Brent Finck, global co-head of high yield at Aviva Investors, says, "July was a bit of a reversal from the first half of the year. It felt like sentiment had shifted, and the risk-taking environment had changed a bit."

  • Uncertainty over the impact of the Delta variant, and fear that "we are now already at 'peak growth,' and economic conditions may soften quicker than previously anticipated" in part drove the shift toward risk-off in high yield, Finck says.
  • Historically, the high yield market has been highly efficient in predicting periods of overall market stress down the road — especially when the riskiest, lowest-rated bonds come under pressure, he adds.

Yields on those lowest-rated bonds have shot up over the last month. The "CCC rated and lower" segment of the ICE BofA high yield index is now yielding 7.4%, up materially from its record low 6.5% on July 7.

  • That doesn't mean we're in for a massive market correction. Yields still remain low by historical standards. But it is a sign that market froth has receded from its sugar high.

Be smart: Bond prices can only go so high. Unlike stocks, which theoretically have no ceiling, companies eventually repay the money they owe to bondholders — but no more than that.

The bottom line: At a certain point, the only direction bond prices can move is lower. We may have reached that point.

  • Low bond prices were a buying opportunity last year. "But the expectation for spread compression has gone away, and now portfolio managers are thinking of high yield as an asset class that provides solely a stream of interest payments," Finck says.

Go deeper

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Inflation looks like it’ll run hot for longer than plenty of smart people thought it would. The conversation over just how much more Americans will have to pay for their stuff has taken on a new intensity, as supply problems show few signs of fading.

Why it matters: The rate of price growth has remained consistently strong in recent months — a time that some thought would bring cooling prices after an initial reopening spike. What goes on with prices will influence the decisions made by Congress, the Biden Administration, and the Federal Reserve.

Biden rejects Trump's latest executive privilege claims

Photo: Jim Watson and Saul Loeb/AFP via Getty Images

The White House on Monday rejected two more of former President Trump's claims of executive privilege over documents that the House select committee investigating the Jan. 6 Capitol riot requested, CNN first reported.

Why it matters: Trump's legal team is seeking to block some of the panel's requests for records by invoking executive privilege, which can allow presidents and their aides to sidestep congressional scrutiny. The Biden administration has maintained that it will evaluate on a case-by-case basis.

Amazon warehouse workers in New York file petition to hold unionization vote

Amazon workers and their supporters rally outside the National Labor Relations Board's regional office in Brooklyn, New York City, after filing a petition requesting an election to form a union. Photo: Gabby Jones/Bloomberg via Getty Images

Amazon warehouse workers in New York City filed a petition on Monday with the National Labor Relations Board (NLRB) to hold a vote on unionization.

Why it matters: The move comes six months after an organizing effort was defeated at Amazon's distribution center in Alabama.