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Federal Reserve Board
On June 17, the Federal Open Market Committee (FOMC) unanimously voted to maintain the federal funds rate at its target range of 3.50%-3.75%. While the decision was widely expected, the Committee adopted a more hawkish tone by removing language that had previously suggested an easing bias. In the statement, the Committee emphasized solid economic growth, a resilient labor market, elevated inflation and its commitment to restoring price stability. Chair Kevin Warsh's first FOMC meeting featured a notably shorter policy statement with significantly less forward guidance, reinforcing that future policy decisions will depend on incoming economic data. Updated economic projections also pointed to a higher-for-longer rate outlook, with inflation forecasts revised upward and policymakers no longer expecting rate cuts as the most likely path.
European Central Bank
On June 11, the European Central Bank (ECB) raised its deposit facility rate by 0.25% to 2.25%, citing elevated inflation pressures driven by the conflict in the Middle East and reaffirming its commitment to returning inflation to its 2% medium-term target. While acknowledging a weaker growth outlook, the ECB Governing Council noted that higher energy prices have increased inflation risks and justified a more restrictive policy stance. Updated projections point to higher inflation and slower economic growth over the near term, while the ECB reiterated that future policy decisions will continue to be data-dependent and made on a meeting-by-meeting basis, without pre-committing to a specific rate path.
Bank of England
On June 18, the Bank of England's Monetary Policy Committee (MPC) voted 7-2 to leave the Bank Rate unchanged at 3.75%, with two members favoring a 0.25% increase. While recent declines in energy prices have eased some near-term inflation pressures, the Committee emphasized that inflation risks remain elevated and reiterated that it stands ready to act as necessary should higher energy costs feed through to wages, prices and inflation expectations. The MPC maintained its data-dependent, meeting-by-meeting approach, noting that future policy decisions will depend on the evolution of inflation, labor market conditions and the broader economic outlook. The Committee continues to expect inflation to rise modestly in the near term before easing back toward its 2% target over the medium term.
Monthly Interest Rate Summary
Source: Bloomberg
Monthly Interest Rate Summary
As of 6/30/26
MSILF Weighted Average Maturities (WAM) Summary1
Source: iMoneyNet
MSILF Weighted Average Maturities (WAM) Summary1
As of 6/30/26
PORTFOLIO STRATEGY
Government/Treasury Strategy
Markets have been volatile as they reassess the outlook for interest rates, with expectations shifting toward potential rate hikes by year-end. As a result, we have let the portfolios organically roll down, while strategically increasing exposure to floating-rate instruments that stand to benefit if rates move higher.
A short-term U.S.-Iran peace agreement reopened the Strait of Hormuz, alleviating some fears of a prolonged disruption to global trade and the inflationary pressures that would have followed. At the June FOMC meeting, newly appointed Chair Warsh held rates steady while reaffirming the Fed's commitment to restoring price stability, though he offered little forward guidance on future policy adjustments. Markets are currently pricing in a 0.25% rate increase by December, with the possibility of earlier action if inflation data warrants it.
As expected, Treasury bill supply was mostly negative in June due to corporate tax day. Combined with reserve management purchases (RMPs), repo markets saw little volatility outside of large coupon settlement days and quarter-end. Bill issuance will start increasing again in July, which has the potential to add more volatility into repo markets on settlement days.
Currently, we have no concerns on liquidity to note. The Federal Reserve Bank of New York reduced the amount of RMPs by more than expected, from $40 billion per month to $10 billion per month, but it has not resulted in funding pressures in the repo market.
Prime Strategy
June was characterized by a meaningful repricing of the Fed path, with markets increasingly pricing in the possibility of additional rate hikes this year as inflation remained firm and economic data continued to demonstrate resilience. While geopolitical risks persisted, credit fundamentals remained healthy and demand for high-quality, front-end spread products continued to support relatively stable spreads. As rate expectations shifted higher, yields further out the curve became increasingly attractive. During the month of June, we selectively extended into fixed-rate wholesale funding structures to lock in elevated yields while maintaining flexibility through a balanced allocation to floating-rate securities that provide a rate-resetting feature if Fed hikes come to fruition.
The repricing of the front end of the curve has created attractive opportunities to deploy cash into fixed-rate wholesale structures further out the curve, offering incremental yield and favorable roll-down. Wholesale funding products continue to offer attractive relative value versus many financial corporate bonds, while corporate bonds continue to provide access to high-quality, non-financial issuers not available in the commercial paper market.
1 Weighted Average Maturity (WAM): Measures the weighted average of the maturities of the portfolio’s individual holdings, taking into account reset dates for floating rate securities.
The views and opinions expressed are those of the Portfolio Management team as of June 30, 2026 and are subject to change based on market, economic and other conditions. Past performance is not indicative of future results.
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