Last week’s downward preliminary revision by -911k jobs to Bureau of Labor Statistics payroll data cemented expectations for a Fed rate cut this week by 25 basis points. Some suggestions that a 50-bas...
Last week’s downward preliminary revision by -911k jobs to Bureau of Labor Statistics payroll data cemented expectations for a Fed rate cut this week by 25 basis points. Some suggestions that a 50-basis point reduction may be possible entered the conversation but is an unlikely scenario. Regardless of the actual amount of this week’s reduction, the Fed is beginning the path to policy normalization away from the more restrictive path that has been the norm for much of this year. Referring to the Fed’s dual mandate of price stability and maximum employment, the dynamic has shifted further towards the labor market since Chair Powell’s Jackson Hole speech, which set the stage for a more dovish Fed policy initiative going forward. Presently, the Fed’s SEP (Dot-Plot) projection suggests a 3.0% Fed Funds terminal level for the end of 2026. Though the Fed (and virtually every economist) has a less-than-stellar track record for such predictions beyond a few months’ time frame, it warrants acknowledgement that this forecast shapes policy decisions in the immediate future.
The markets reacted as anticipated following increased expectations for more immediate and possibly more urgent stimulative policy action by the FOMC. Equities continued to advance, with the S&P 500 Index reaching another new high last week, touching 6594 on Friday. Bonds rallied, with 10-Yr US Treasuries testing support at the 4% level before later retracing to the 4.08% level at which they started the week.
As the above chart indicates, despite some choppiness in rates in April following President Trump’s Liberation Day announcement, the general path for rates has been downward for much of the year. Notably, 10-Yr US Treasuries came within 14 basis points of the April yield low at 3.85%, which is likely to be tested with the exuberance of the market for an ongoing rate cut environment. From a technical perspective, once the 4.13% support level was breached 2 weeks ago, the market had little support other than the psychologically relevant 4% level that was just reached until it hit the 3.85% range. The next technical level to be mindful of below is the September 2024 October low near 3.60%. Given the rate cut environment, steeper yield curve, and still relevant if not as urgent, inflation concerns, 10-Yr Treasuries will have a difficult time maintaining sub-4% yields in the immediate future, and any push towards the October low represents a good level to fade the market as a trade.
From the Municipal Desk (with contributions from Ryan Riffe):
The municipal market reversed the sleepy Monday trend and picked up right where it left off from the previous Friday. By the week’s end, yields on the AAA MMD scale had fallen by as much as 20 basis points along the curve. The most significant movement occurred at the long end, where demand continues to be the heaviest. This surge in interest not only drove yields lower but also led to spread compression for 4% and 5% coupon bonds. Light secondary bid lists and steady inflows into municipal bond funds helped keep the positive momentum. Looking ahead to the current week with the pending Fed decision, as is typical, the new issue calendar is expected to decline from $10.6 billion to $5.4 billion. With favorable technicals and continued demand, the municipal market appears to be well-positioned for another strong week.
Ratios as a Percentage of US Treasuries:
2-Yr 56%
3-Yr 57%
5-Yr 60%
10-Yr 71%
30-Yr 90%
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.
Investing involves certain risks, including possible loss of principal. You should understand and carefully consider a strategy’s objectives, risks, fees, expenses, and other information before investing. The views expressed in this commentary are subject to change and are not intended to be a recommendation or investment advice. Such views do not take into account the individual financial circumstances or objectives of any investor that receives them. All indices are unmanaged and are not available for direct investment. Indices do not incur costs including the payment of transaction costs, fees, and other expenses. This information should not be considered a solicitation or an offer to provide any service in any jurisdiction where it would be unlawful to do so under the laws of that jurisdiction. Past performance is no guarantee of future results.
© 2025 SWBC. All rights reserved. Securities offered through SWBC Investment Services, LLC, a registered broker/dealer. Member FINRA & SIPC. Advisory services offered through SWBC Investment Company, a Registered Investment Advisor, registered as such with the US Securities & Exchange Commission. SWBC Investment Services, LLC is under separate ownership from any other named entity. SWBC Investment Services, LLC a division of SWBC, is a nationwide partnership of advisor.
Let Us Know What You Thought about this Post.
Put your Comment Below.