The New Year’s holiday dampened activity, leaving markets sluggish on Friday after an early close midweek. Equities eased slightly as Treasury yields drifted higher but stayed within their recent thre...
The New Year’s holiday dampened activity, leaving markets sluggish on Friday after an early close midweek. Equities eased slightly as Treasury yields drifted higher but stayed within their recent three-month range.
Earlier in the week, FOMC minutes shed light on December’s 25 bp rate cut, revealing a divided Committee and the challenges behind the decision. While expectations point to no change in rates at the January meeting, some officials noted further cuts could be warranted in the future if inflation continues to ease. The impact of the government shutdown, which delayed key data releases, leaves markets waiting for clarity. Current odds of a January cut remain low at roughly 15%.
Rates remained well-contained at year's end. On a longer timeline, however, 10-year rates are down 40 bps on the year after closing near 4.17%, while 2-year yields have fallen nearly 75 bps to just below 3.50%, reflecting expectations for lower short-term rates. The long end tells a different story - 30-year yields ended 2025 slightly higher than a year ago, up 6 bps - underscoring how deficit and inflation concerns continue to temper the impact of Fed policy.
Equities failed to reach a new high during the final few trading sessions of the year, after peaking just below 6950 during the prior week. Looking ahead, the AI trade should continue to drive performance through early 2026 as ongoing AI-related capital expenditures should bolster the technology sector and drive improved corporate efficiencies across industries.
Equities closed the year shy of new highs after peaking near 6,950 during the prior week. Looking ahead, AI-driven capital spending is expected to remain a key performance driver in early 2026, particularly in the technology space, while boosting operational efficiency across sectors and improving margins accordingly.
From the Municipal Desk (with contributions from Ryan Riffe):
The holiday-shortened week kept muni trading quiet, although modest strength emerged in 3 to 7-year maturities, with yields down as much as 4 bps. The 10-year muni/UST ratio held near 67–68%, while front-end ratios stayed around 70%. Strong inflows into muni funds and ETFs should support demand, along with January reinvestment flows expected to exceed $50 billion for the month. With just $5.7 billion in new issuance expected next week, secondary markets will likely remain tight as accounts seek paper following a less active primary market during the prior two holiday weeks.
30-Day Visible Supply @ $8.24 Billion
Weekly Supply @ $5.7 Billion
2-YR Ratio @ 70%
3-YR Ratio @ 69%
5-YR Ratio @ 66%
10-YR Ratio @ 67%
30-YR Ratio @ 88%
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