Rates trended lower throughout the week, with the 10-year U.S. Treasury briefly dipping below the psychologically important 4% level, though it failed to sustain a deeper move. Equities recovered nearly all of the losses from the prior week but remain below October’s record highs. Before this rebound, the S&P 500 had fallen nearly 5% in November as concerns over an AI-driven bubble weighed on sentiment. Historically, November is one of the stronger months for equities, raising questions about the likelihood of the much-anticipated “Santa rally” heading into the holiday season. Black Friday and Cyber Monday sales may offer relief for anxious investors if shoppers demonstrate stronger sales participation.
Looking ahead, Nonfarm Payrolls would typically be released at the end of this week; however, the ongoing disruption in reporting official economic data has shifted attention toward private sources. Recent ADP figures indicate the employment picture has cooled over the past month, providing additional motivation for dovish Fed officials considering a rate cut next week. Market expectations reflect this view, with the probability of a cut exceeding 90% by Friday’s close. Meanwhile, reports of Kevin Hassett emerging as a candidate to replace Powell as Fed Chair further contributed to a hawkish undertone. On a longer-term horizon, though expectations continue to suggest additional rate cuts, the pace of such action may be choppy and inconsistent with pauses between future action.
Since Jackson Hole, the Fed’s focus has tilted in favor of ensuring maximum employment over maintaining stable prices. Though inflation has failed to move closer to its stated 2% target, continued strong economic productivity and growth provide the FOMC flexibility to sustain the more accommodative posture it has professed in recent months. Thus, the market has become more comfortable pricing in lower front-end rates in anticipation of sustained accommodative policy action from the central bank.
The FOMC has consistently signaled that the lower bound of the neutral Fed Funds target range is anchored near 3.50%. Until recently, I did not anticipate a meaningful decline in longer-term rates, nor did I expect yields to remain below 4% for any sustained period. Under that assumption, a normalized upward-sloping yield curve with reasonable spreads implied higher rates were more likely to be expected. With expectations for a steepening of the yield curve, lower front-end rates would allow the rest of the curve to hold near current levels without following the lead of lower short-term rates. However, with the Fed’s recent hawkish pivot, the SOFR curve now pricing sub-3% rates by December 2026, and increasingly weak employment data, 10-year Treasuries may not be as anchored to higher yields as I previously anticipated. This could introduce greater interest rate volatility as uncertainty fails to provide a clear direction.
From the Municipal Desk (with contributions from Ryan Riffe):
With all eyes on turkey, football, and the start of 2025's last month of trading, the municipal market unsurprisingly had a quiet Thanksgiving week. Aside from Wednesday's two basis points of strength on the front end, the MMD scale was unchanged. The market will waste no time as it will price around $16 billion of new issue supply for the first week of December. Attractive ratios, increased reinvestment capital, and a stronger conviction of a December rate cut should help the market absorb the larger calendar. We expect the typical year-end portfolio adjustments to provide a solid backdrop for continued two-way activity in the market before flows subside closer to the Christmas holiday.
30-Day Visible Supply @ $19.65 Billion
Weekly Calendar expected @ $16 Billion
2-YR Ratio @ 70%
3-YR Ratio @ 70%
5-YR Ratio @ 67%
10-YR Ratio @ 69%
30-YR Ratio @ 90%
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An index is unmanaged and not available for direct investment. Definitions sourced from Bloomberg.
The Bloomberg Barclays Global Aggregate Negative Yielding Debt Market Value Index represents the portion of the Bloomberg Barclays Global Aggregate Index that measures the aggregate value of global debt with a negative yield. • The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. • The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.• The Cboe Volatility Index® (VIX) is a calculation designed to produce a measure of constant, 30-day expected volatility of the US stock market, derived from real-time, mid-quote prices of weekly S&P 500® Index (SPX) call and put options with a range of 23 to 37 days to expiration.• The ICE BofA MOVE Index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options. It is the weighted average of implied volatilities on the CT2 (Current 2 Year Government Note), CT5 (Current 5 Year Government Note), CT10 (Current 10 Year Government Note), and CT30 (Current 30 Year Government Note), with weights 0.2/0.2/0.4/0.2 respectively.• The Markit CDX North America Investment Grade Index is composed of 125 equally weighted credit default swaps on investment grade entities, distributed among 6 sub-indices: High Volatility, Consumer, Energy, Financial, Industrial, and Technology, Media & Tele-communications. Markit CDX indices roll every 6 months in March & September. • The Markit CDX North America High Yield Index is composed of 100 non-investment grade entities, distributed among 2 sub-indices: B, BB. All entities are domiciled in North America. Markit CDX indices roll every 6 months in March & September. • The U.S. Dollar Index (USDX) indicates the general international value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. Intercontinental Exchange (ICE) US computes this by using the rates supplied by some 500 banks.
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