The government shutdown continues and has now exceeded the 21-day duration of the Clinton-era standoff, making it the second-longest in U.S. history, behind the 35-day shutdown during President Trump’...
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The government shutdown continues and has now exceeded the 21-day duration of the Clinton-era standoff, making it the second-longest in U.S. history, behind the 35-day shutdown during President Trump’s first term. At present, there is little indication that either side is prepared to compromise, suggesting the impasse may persist.
In an unexpected development on Friday morning, President Trump announced the termination of trade negotiations with Canada, following a campaign launched by Ontario that aired in the U.S. and criticized tariffs using archival footage of President Ronald Reagan. The move adds a new layer of complexity to U.S.-Canada relations and trade policy.
The September CPI report, delayed due to the shutdown, was released and came in slightly below expectations, though inflation remains well above the Federal Reserve’s 2% target. Food and energy were the primary contributors to the monthly increase, while the pace of shelter price inflation continued with its modest decline. Notably, White House Press Secretary Karoline Leavitt stated that the October CPI report is unlikely to be released, as the September data was only published to meet the November 1 deadline for Social Security’s cost-of-living adjustment.
Markets responded with relative calm. Interest rates were largely unchanged, and equities resumed their upward trajectory, with the S&P 500 surpassing the 6800 level. 10-Year Treasury yields briefly tested lower levels before returning to the 4% range, which has served as a recent anchor point. Despite the recent trend toward lower interest rates, it may be challenging for yields to move meaningfully lower given current expectations for the Fed Funds Target range to bottom between 3.50% and 3.75%. While the market may test lower yield levels due to external factors and unforeseen events, sustained declines are likely to be limited.
The economic outlook remains clouded by a persistent disconnect between consumer sentiment and spending behavior. The University of Michigan Sentiment Index continues to hover near 50, reflecting consumer concerns about the economy. However, spending data suggests consumers remain active, creating a notable divergence between perception and behavior; akin to a teenager expressing boredom while actively posting dozens of TikTok videos, having fun with all their friends.
Looking ahead, market expectations continue to favor two rate cuts by the Federal Reserve before year-end, driven by concerns over employment softness. Despite ongoing debate around equity valuations, corporate growth forecasts remain robust, supported by a stimulative policy environment. That said, caution remains warranted, as inflation risks have not been fully extinguished.
From the Municipal Desk (with contributions from Ryan Riffe):
With knife and fork in hand, the municipal market sat ready to devour the largest slate of new issue supply since August. Demand continues to be robust and focused on the long end of the curve. Over 75% of the total inflows (which were $1.1 billion) were directed towards long-term funds. Because of the strong demand, many new issue deals were repriced to lower yield targets. In contrast, the front end of the yield curve continues to weaken with yields rising by as much as 10 basis points, pushing 2-yr ratios to 70%. New issue supply will drop to just $6 billion next week as the municipal market looks to close out what has been one of the best Octobers in years. Monthly reinvestment capital will increase in November, which should provide better support for the front-end of the curve. Positive technicals combined with a lighter new issue calendar should pave the way for another strong week on the municipal front.
30-Day Visible Supply @ $10.75 Billion
Weekly Calendar expected @ $6 Billion
2-YR Ratio @ 70%
3-YR Ratio @ 68%
5-YR Ratio @ 66%
10-YR Ratio @ 68%
30-YR Ratio @ 89%
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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