Summary of U.S. Fixed Income Markets 2026 Outlook Industry Overview - **Industry**: U.S. Fixed Income Markets - **Company**: J.P. Morgan Securities LLC Key Economic Forecasts - **Real GDP Growth**: Projected at 1.8% for 2026, consistent with 2025 pace [5][19] - **Core PCE Inflation**: Expected to moderate slightly to 2.7% [19][28] - **Unemployment Rate**: Anticipated to remain stable at 4.3% [19][25] Interest Rate Expectations - **Federal Reserve Actions**: Anticipated 50 basis points (bp) cuts in January and April 2026 [5][19] - **Treasury Yields**: - 10-year yields expected to rise to 4.25% in Q2 2026 and 4.35% by Q4 2026 [6][19] - 2-year yields projected to remain around 3.51% through mid-year, rising to 3.85% by year-end [18][19] Fixed Income Market Dynamics - **Supply/Demand Imbalance**: Improvement expected in the Treasury market, but spread market technicals may worsen [19][41] - **High-Grade Corporate Spreads**: Forecasted to widen by 15bp to 110bp by year-end 2026 due to heavy supply and weakening credit fundamentals [19][44] - **High-Yield Bond Spreads**: Expected to widen by 30bp to 375bp, with default rates projected at 1.75% [15][19] Sector-Specific Insights - **Agency MBS**: Anticipated to provide modest excess returns despite a projected 5bp widening in OAS [19][28] - **ABS Market**: Expected to remain resilient with stable credit and slightly tighter spreads [11][12] - **CLOs**: Targeting new issue spreads to widen to 130bp, driven by waning exuberance and late-cycle defensiveness [15][46] Risks and Considerations - **Labor Market Risks**: Elevated risks of recession due to cyclical weakening in the labor market [29][30] - **Inflation Risks**: Core inflation expected to remain sticky, complicating the Fed's easing strategy [28][30] - **Regulatory Risks**: Potential impacts from financial deregulation and changes in capital frameworks [38][39] Technical Analysis - **Yield Curve**: Expected to remain range-bound with risks of flattening as the Fed goes on hold [6][19] - **Volatility**: Anticipated decline in shorter-expiry volatility, with longer-expiry volatility expected to increase [37][42] Conclusion - The outlook for the U.S. Fixed Income Markets in 2026 suggests a complex interplay of growth, inflation, and interest rate dynamics, with a focus on maintaining a defensive portfolio amidst macroeconomic uncertainties. The anticipated changes in yields and spreads across various sectors highlight the need for strategic positioning in the evolving market landscape.

Core Insights - MarketAxess Holdings Inc. is launching Opening and Closing Auctions, a standardized market-wide auction protocol aimed at enhancing price discovery and providing unique liquidity for trading U.S. credit [1] Company Developments - The new auction protocol is designed to improve the trading environment for fixed income securities [1] - MarketAxess consulted a diverse group of buy-side and sell-side participants during the development of the Opening & Closing Auctions [1]

Financial Data and Key Metrics Changes - The company reported an 11% revenue growth to a record $219 million, including a $2 million benefit from foreign currency fluctuations, with a 10% growth excluding FX [23][24] - Diluted earnings per share increased by 11% to $1.91, or $2 per share excluding notable items, representing a 16% increase [23] - Commission revenue rose 12% to a record $192 million, driven by strong market volumes and increased volatility [24][27] Business Line Data and Key Metrics Changes - The client-initiated channel saw a 38% growth in block trading average daily dollar volume (ADD) across U.S. Credit, emerging markets, and Eurobonds [8][14] - Portfolio trading channel generated a 69% increase in total portfolio trading ADV [9] - Dealer-initiated channel experienced a 40% increase in dealer-initiated ADV [9] Market Data and Key Metrics Changes - U.S. High grade market share dropped to 10% in July from 12% in June, attributed to large trades moving to phone and chat [11] - The company reported a record 12.5% share of blocks in U.S. High grade, representing an increase of almost 200 basis points year-over-year [15] - Emerging markets and Eurobonds saw significant growth, with block trading volume up 27% in Q2 [56][100] Company Strategy and Development Direction - The company is focusing on becoming more protocol agnostic and expanding its addressable market through multiple trading protocols [5] - Strategic hires have been made to enhance product delivery and drive growth, including key personnel in product management and analytics [34][78] - The launch of the new Midex solution is expected to enhance dealer-to-dealer trading capabilities [18][34] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future growth, particularly in U.S. Credit, driven by new initiatives and a favorable macro environment [21][31] - The company acknowledged disappointing market share numbers in July but remains confident in its strategies to electronify the market [22][44] - Management highlighted the importance of adapting to market dynamics, particularly in the context of low volatility environments [42][72] Other Important Information - The company generated $360 million in free cash flow over the trailing twelve months, with $145 million remaining on the share repurchase authorization [29] - Operating expenses increased by 6% year-over-year, driven by higher employee compensation and technology costs [28] - The effective tax rate rose to 26.9%, reflecting increased accrual for uncertain tax positions [26] Q&A Session Summary Question: Can you provide details on the progress of new initiatives and market share? - Management reported significant growth in key areas, with investment grade portfolio trading up 47% year-to-date and market share in portfolio trading up 340 basis points [38][39] Question: What are the drivers behind the decline in fee per million? - The decline was attributed to protocol mix and increased portfolio trading volumes, although there was a slight recovery in July due to changes in high-grade duration [50][51] Question: Can you elaborate on the block trading initiative? - Management noted that block trading volume year-to-date is up over 20%, with significant growth in both Eurobonds and emerging markets [54][56] Question: What is the outlook for the municipal business? - The municipal business has seen a year-over-year growth of 23%, with a focus on enhancing electronic trading capabilities [85][89] Question: How does the company view M&A opportunities? - The company remains focused on organic growth but is also open to bolt-on acquisitions, leveraging a strong balance sheet for potential M&A activities [92][95]