- The Federal Reserve (Fed) delivered the widely expected third consecutive 25bp interest rate cut of 2025, lowering the fed funds target range to 3.50%–3.75%, to further support downside risks in the labor market
- The Fed also announced that they will immediately begin to add liquidity to the market by purchasing $40 billion per month of Treasury Bills for reserve management purposes
- Fed Chair Jerome Powell struck a slightly dovish tone at his press conference regarding the employment market, while also acknowledging some hawkish voices in the committee
- US consumer sentiment rose for the first time in five months, led by young consumers, as the outlook for personal finances and inflation expectations improved
- Treasury yields were higher on the week before declining following yesterday’s Fed meeting; the 2-year Treasury rate rose to 3.62% mid-week before falling to 3.52%, 3bps higher week-over-week
- Investment-grade issuers priced just shy of $5 billion of new debt this week, below dealer expectations of $15 billion; the new issue calendar is expected to slow as the market winds down heading into year-end
- Investment-grade corporate spreads tightened by 3bps to 76bps, while yields increased 5bps to 4.83%
- High-yield issuers were relatively active as supply totaled over $7 billion for the week, making it the busiest December in terms of high-yield issuance since 2020
- Concerns over the speed of the current easing cycle pushed high-yield corporate spreads wider by 6bps to 275bps, while yields rose 10bps to 6.69%
- Agency mortgage-backed securities (MBS) outperformed other securitized sectors as falling mortgage rates helped drive spreads tighter by 3bps to 23bps – the lowest level since April 2022
- Municipals outperformed Treasuries as muni/Treasury ratios fell across the curve; demand for municipals bonds continued as funds reported $253 million of net inflows
Treasury Yield Curve
Month-to-Date Excess Returns
