Market Updates

A less transparent Fed could reshape how markets price risk, plan investments, and interpret policy. While reduced guidance may offer flexibility, it risks higher volatility, weaker policy transmission, and greater uncertainty across the financial system.

Federal Reserve Chair Kevin Warsh’s post Federal Open Committee meeting news conference got me thinking about how much information transparency has shaped the financial markets since I entered the business nearly 50 years ago.

In November we wrote about cracks appearing in credit, cautioning investors that emerging risks could expose corporate bonds and commercial paper to losses and drag down returns of portfolios that hold them. Six months later the cracks have not expanded. Nor have they healed.

April calmed after March, but oil swings kept volatility alive. The Fed held rates and signaled higher-for-longer. Growth improved, inflation risks lingered, and we modestly extended to lock in yield.

It was not supposed to be this way. At the start of 2026, many investors were looking forward to declining short-term rates, with the Federal Reserve continuing to cut the federal funds rate to three percent by year-end. Some prominent economists forecast rates with a two percent handle by December. Longer-maturity investments, including two-year Treasuries with yields around 3.50%, seemed to have value.

Prolonged geopolitical and energy shocks reinforce late cycle credit risks, but strong bank balance sheets, senior and limited private credit exposures, and structural protections point to heightened volatility and earnings pressure—not systemic stress—absent a sustained policy constraint.

Sell America is a great line for pundits that may have roots in financial market reality. Large and growing federal deficits could lead foreign investors to sell Treasuries and convert their proceeds from dollars to other currencies (or gold).

Last November we released results of our annual survey of local government investment pools, which covered 161 pools with nearly $1 trillion in assets.

Despite late-cycle risks—high rates, inflation, private credit growth—strong bank capitalization, stress testing, and moderate private debt suggest volatility ahead, not systemic collapse.

President Trump’s post last week that he was instructing his “Representatives” to buy $200 billion of mortgage bonds has a variety of consequences (or non-consequences) for the fixed income market in which public agencies participate.

Front-end markets ended 2025 in rare calm, with tight spreads and steady ABCP pricing. As supply constraints loom and Fed policy evolves, tactical entry points and extensions remain key.

The global economy is poised for continued—if cautious—growth in 2026, shaped by evolving policy decisions, delayed impacts from major fiscal and monetary measures, and the transformative rise of artificial intelligence. While trade tensions and geopolitical risks persist, policy support and strategic shifts are creating both challenges and opportunities for investors.

States and localities have long invested in bank certificates of deposit because they are familiar, easy to acquire and may be viewed as serving the community. In most cases the issuing bank must collateralize the deposit, so CDs are viewed as having low risk. But changes in the bank business model may have made this investment less attractive for many public funds investors.

Fixed income has undergone a profound transformation in recent years. Once useful mainly for generating income and hedging equity risks, the asset class now plays central roles in portfolios that solve specific, complex challenges for institutional investors, from matching multifaceted liabilities to meeting demanding spending targets.

Fed cuts rates to 3.75–4%, will end QT on December 1 and shift to T-Bills. Powell signals cautious, data-driven decisions amid inflation, labor changes, and shutdown concerns.

US labor market indicators weaken amid a government shutdown, UK growth stays muted despite GDP revisions, and Japan’s new Prime Minister signals modest stimulus as global uncertainty lingers.

Central banks ease rates amid global uncertainty; US, Europe, Canada, Australia, and Japan banks show resilience. Credit markets remain open, but long-term yields and fiscal risks warrant close monitoring for investors.

The Fed’s glide path to neutral is intact, but late-cycle labor wobbles and sticky inflation keep us cautious: long duration, dry powder, and no heroics

The Fed remains on hold amid modest inflation gains and political noise around Chair Powell. While CPI rose slightly, shelter inflation eased and consumer expectations softened. With trade deals pending, a September rate cut remains a live possibility.

The US economy shrank by 0.3% (saar) in Q1, its first decline since early 2022, closely matching the -0.2% consensus. However, this headline figure masks deeper underlying dynamics.

The current politics crises again point to the importance of clever cash investing. Historically, those who maintained unleveraged positions and proactively de-risked their portfolios were the ones best positioned to endure market turmoil and emerge stronger on the other side.

Sentiment toward the global economy is less positive than in December, reflecting the impact of US tariff announcements. A recession is still unlikely but downside risks to growth have increased.

It’s a tumultuous time for US government bonds, as long-end yields remain elevated and foreign demand concerns loom large. We unpack the recent bear steepening in the US Treasury curve, outline what historical data shows about rapid drawdowns in Treasuries, and discuss some potential tailwinds for long-dated Treasuries as we look ahead.

The year ahead will likely look markedly different from recent years. Volatility has already jumped in 2025 and may remain elevated as markets contend with the impact of tariffs, immigration laws, and restructuring efforts within specific government programs and agencies.

Money market funds (MMFs) are up by approximately $300 billion. Local government investment pools (LGIPs) are up almost $50 billion, 13% from a year ago. Ultra-short-term exchange-traded funds (ETFs) are up almost $63 billion, or 32% since last summer.

Tactically, heading into the end of 2024, we recognized the balance sheet constraints that occur at each year-end and anticipated short-term commercial paper (CP) yields rising vs. US Treasury Bills.

From the US policy rate path to Fed’s tapering of quantitative tightening, and maybe even the dawn of a new future for cash investing in asset tokenization and stablecoins—2025 looks poised to be a very happening year for cash investors.

As we look ahead to 2025, credit markets are poised to remain resilient despite elevated interest rates and fiscal challenges. However, sectors like real estate, private credit, and sovereign debt may face increased pressure if conditions tighten further.

Lori Heinel, Global Chief Investment Officer, shares our views on the key trends and developments that will shape the global market landscape in 2025.

Prior to the election there was considerable uncertainty about the path forward, not only for interest rates, but for the economy as a whole. It seemed the whole world was watching for the outcome, which many experts thought would take weeks or possibly even months to finalize. As it turns out, the results were overwhelming and clear with the republican party sweeping the presidency, senate and house of representatives.

Global growth forecasts are largely unchanged from last quarter, with the pace of economic expansion in 2024 slowing moderately in 2025. Easing inflation, resilient consumers, and a broadening of central bank rate cuts underpin our expectations for a soft landing.

August was marked by a mixture of calm and volatility, largely influenced by US Federal Reserve (Fed) Chair Jerome Powell's much-anticipated speech at the Jackson Hole Economic Symposium. Despite it being the peak of the summer vacation season, financial markets had their moments of turbulence, underscoring the challenges of navigating an uncertain economic environment.

The labor market’s steady recovery since 2009 showed signs of tightness, with the ratio of job openings vs. unemployed reaching a disparity of 5 million in 2017. As the labor market continues to rebalance post COVID-19, employers now face the challenge of continuing higher labor costs.

Elections in the UK, Europe and the US will have implications for credit markets. Market scrutiny of governments’ fiscal policies could have the most significant impact on global bond markets in the aftermath of this election cycle.

The Fed’s policy rate trajectory remains uncertain, with expectations of rate cuts in 2024 diminishing. But several other factors, such as the US presidential election, record cash levels, and regulatory changes in the money market fund industry, could be just as consequential for investors.

The soft patch in housing sector data evident in last week’s homebuilder sentiment and housing starts/ permits extended this week to new and existing home sales. New home sales dropped 4.7% m/m, a weak showing exacerbated by sizable downward revisions to the prior two months.

The April US Federal Reserve (Fed) meeting carried significant weight, with market participants anticipating potential shifts in policy direction due to the recent strong data prints. However, Fed Chair Jerome Powell's remarks brought a collective sigh of relief to the markets. Contrary to some expectations, Powell indicated that policy rates are appropriately restrictive and do not necessitate an increase. This sentiment led to a rally in the Treasury market, with yields declining.