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WEEK ENDING 12/19/2025
- A week of post-shutdown catch-up
- Mixed economic signals and upcoming key data
- Happy holidays!
A CITY DIFFERENT TAKE
This was the week for the market to catch up with the government data delayed by the shutdown. There is a lot, so we will go through it one day at a time:
Tuesday
The Treasury market was slightly lower in yield on the day. The 10-year Treasury bond yield was 3 basis points lower on the day (4.147%).
Thursday
The bond market’s initial reaction to the release was positive but faded throughout the day. The 10-year Treasury bond was 3 basis points lower in yield at the end of the day (4.124%). The government shutdown has influenced the release, as the Wall Street Journal pointed out:
“The government’s closure made it impossible for Labor Department workers to collect some of the data they normally would have to compile the report on the consumer-price index. Even before the release, economists warned that technical workarounds that the agency used to deal with the collection issues may have biased the November figure downward, causing inflation to be understated.” One Number Does Not Trend Make!
New York Fed President John Williams questions the November CPI results:
“Williams said Friday that ‘technical factors’ likely distorted November’s inflation data, pushing the headline reading lower than it otherwise would have been.” Catchup Numbers in Question
We will have to wait for future releases for confirmation.
Friday
Friday’s Treasury market was a little weaker to start the day but finished 3 basis points lower in yield (4.15%).
Since this is the last commentary for the year, we thought sharing the market-implied probability of rate cuts in 2026 would be useful. Chair Powell’s chairmanship is up in May.
TreasuryMarket
The Treasury yields were marginally lower across all tenors. The 2/10 spread is at 68 basis points for the week. The Treasury market took the release of the delayed data in stride.
Municipal Market
Yield remained range-bound in the muni market. The 2/10 slope is at 28 basis points, which is still very flat.
Selected Municipal AAA General Obligation Bond / Selected Treasury Bonds Yield Ratio
Treasury-muni ratios were slightly higher across the yield curve because of a lower Treasury yield curve and relatively unchanged yields for the muni curve.
Investment Grade Corporates
Investment-grade corporate bond yields moved marginally lower week over week.
THIS WEEK IN WASHINGTON
Washington was filled with headlines this week — and not all good.
At the top of the list, Vanity Fair’s Susie Wiles article set a lot of tongues wagging. The fallout from her candid interview should be interesting.
“The Vanity Fair articles appear to have rocked the administration, with Wiles distancing herself from her portrayal Tuesday morning. She said on X that it was ‘a disingenuously framed hit piece on me and the finest President, White House staff, and Cabinet in history.’ She said it was missing context.” Don't talk to Whipple
Next, House Republicans revolted over the health care cliff:
“Four centrist Republicans broke with Speaker Mike Johnson on Wednesday and signed onto a Democratic-led petition that will force a House vote on extending for three years an enhanced pandemic-era subsidy that lowers health insurance costs for millions of Americans.”
Then the House adjourned for the holidays. Weren’t these folks on a paid vacation during the shutdown? We wonder how many House members will be hosting constituent town hall meetings over the break.
“The developments set the stage for a renewed intraparty clash over health care in January, something Republican leaders had been working hard to avoid.” Nero, Rome Burning Analogy Anyone
The president addressed the American public on Wednesday night. The term “address” is kind — it was more like being yelled at for 18 minutes, telling us what we are feeling.
The Kennedy Center is getting a new name:
“‘The Kennedy Center Board of Trustees voted unanimously today to name the institution The Donald J. Trump and The John F. Kennedy Memorial Center for the Performing Arts,’ spokeswoman Roma Daravi said in a statement, adding that the name honors Trump’s work at the center since taking over early in his second term.” Rose or Pig You Decide
A triumphal arch:
“Amid concerns that he has failed to address a worsening affordability crisis, with health insurance premiums about to spike dramatically for over 20 million Americans, Donald Trump revealed on Sunday that his domestic policy chief’s main priority is building a triumphal arch for Washington DC.” WHAT!?!
The Department of Justice failed to release the majority of the Epstein files by Friday’s deadline:
“In the ABC News interview, (Todd) Blanche further sought to defend the department's decision not to release the entirety of its files subject to disclosure under the bill signed into law by Trump, which gave the Justice Department a 30-day deadline to release the entirety of its Epstein investigative files.”
The lawyer speak is maddening:
“‘I did not say that all the files will not be released, I said all the files will not be released today,’ Blanche said when asked about an interview he gave earlier Friday to Fox News. ‘And the law is very specific that the Department of Justice is required to make sure that we protect victims. And as recently as Wednesday, we learned of additional victim names, and so we've received over 1,200 names of victims and their family members since we started this process. And so there's an established precedent that in a situation like this, where it's in essence impossible for us to comply with the law today, that we comply with the law, consistent with the law.’” More Word Vomit!
For those who think a cover-up conspiracy is afoot, maybe you have a point.
All this (and other stuff) adds up to a tough week politically for the administration. With the 2026 midterm elections looming, the president’s approval rating sits at a low:
“Trump's overall approval rating also slipped over this period, dropping from 45 percent to 42 percent among all respondents, while disapproval rose from 55 percent to 58 percent.” Nobody Likes to be Yelled at!
WHAT, ME WORRY ABOUT INFLATION?
The 5-year Breakeven Inflation Rate finished the week of Dec. 19 at 2.27%, 5 basis points lower than the previous week. The 10-year Breakeven Inflation Rate finished the period at 2.24%, 2 basis points lower than last week's observation.
MUNICIPAL CREDIT
Last week's 10-year quality credit spread between BBB revenue bonds and AAA general obligation bonds was 1.04%, 12 basis points wider than last week compared to a historical average of 1.68%, demonstrating very healthy and tight spread metrics.
TAXABLE CREDIT
Investment-grade spreads widened a bit at 1.02%, 1 basis point higher than last week. The long-term average is 1.57%. The high-yield spread is higher at 2.60%, compared to a historical average of 4.56%.
WHERE ARE FIXED-INCOME INVESTORS PUTTING THEIR CASH?
Money Market Flows (millions of dollars)
Money market fund flows were up on the week, except for the prime category.
Mutual Fund Flows (millions of dollars)
Mutual fund flows in total were up week-over-week.
ETF Fund Flows (millions of dollars)
Net ETF flows were lower than the week before with taxable bonds being the only positive category.
SUPPLY OF NEW ISSUE BONDS
Supply in this holiday-shortened week is immaterial.
CONCLUSION
The past week was filled with data and absurdities. It was also filled with a great deal of sadness; Brown University suffered a mass shooting, which took the life of two young, promising students. The suspect was later found dead by a self-inflicted gunshot wound.
Australia suffered what can only be called a massacre:
“Sunday marked the first night of Hannukkah, and to celebrate, more than 1,000 people gathered at Sydney’s Bondi Beach, some dancing and banging drums. Others were swimming in the ocean.
“In just a few hours, the beach would be the site of Australia’s deadliest mass shooting in almost 30 years, leaving 15 people dead, as well as one of the suspects.
“The two suspected gunmen are 50-year-old Sajid Akram, who was killed exchanging gunfire with police; and his 24-year-old son Naveed Akram, who is in custody at the hospital.” Not Again!
Although both are terrible, the Bodia Beach incident highlights a growing rash of antisemitism gripping the world. Well, just like the Maccabee lamps burning (commemorated by the Hanukkah holiday), there is hope! That hope came in the person of Ahmed al Ahmed, a 43-year-old shop owner who got involved and saved lives at his own peril:
“A bystander who wrestled a gun from one of the alleged attackers during a mass shooting at Bondi Beach has been identified as Ahmed al Ahmed, whose refugee parents had just arrived from Syria, according to Australian officials and media.
“Ahmed, a 43-year-old father to two girls, risked his life by tackling an alleged shooter and seizing the gun during Sunday’s attack, prompting a wave of donations from members of the public to support him and his family.
“He was later shot by one of the two gunmen, a father and son duo whose beachside rampage targeting a Jewish gathering killed at least 15 people and wounded dozens of others.” Hope
Say his name:
- An immigrant.
- A Muslim.
- Wounded twice by the attackers he helped to disarmed, who he chose not to shoot.
- A hero.
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