Fixed Income Update
The bond market continues its search for equilibrium. With no meaningful economic data released this week, investor focus shifted back to fiscal policy.
US Treasury yields have risen since President Trump signed his tax bill into law last week. According to the Congressional Budget Office, the legislation will add an estimated $3.4 trillion to deficits over the next decade. Against this backdrop, this week’s Treasury auctions served as a litmus test for investor demand. The results were generally solid, with the $39 billion 10-year and $22 billion 30-year auctions both seeing strong demand. This helped assuage some market concerns about the ability of the US to finance its growing deficits.
Trade policy also returned to the forefront this week. July 9 marked the end of the 90-day pause in tariffs that President Trump announced back in April. In the absence of trade agreements with most countries, the President issued written notices to foreign leaders establishing new tariff rates effective August 1, stating that “no extensions will be granted” this time. Among the measures announced were a new 50% tariff on copper imports, a potential increase in the current 10% blanket tariff rate to 15-20%, and a threat to raise tariffs on certain Canadian imports from 25% to 35% starting August 1. While some of these threats are likely bargaining tactics, the bond market remains concerned that aggressive tariff policies could ultimately lead to a stagflationary environment, with slowing growth alongside accelerating inflation – putting the Federal Reserve in a difficult position regarding monetary policy.
Despite these concerns, futures markets continue to expect the Fed to cut rates twice this year, with the first cut anticipated at its October 29 policy meeting. Adding to this outlook, Fed Governor Chris Waller said on Thursday that he believes the fed funds rate is too restrictive and that policymakers should consider a cut at this month’s meeting. Waller, who is reportedly on President Trump’s shortlist for the next Fed chair, also suggested that the Fed should consider ending its quantitative tightening policy sooner than currently expected.
Looking ahead, next week will be a busy one for economic data. The Consumer Price Index (CPI) will be released on Tuesday, followed by the Producer Price Index (PPI) on Wednesday. Additionally, 11 different appearances by Fed officials are scheduled throughout the week, providing policymakers with an opportunity to clarify any shifts in their outlook before entering the pre-meeting blackout period at the end of the week.
As of July 3, 2025
|
Index |
Current |
Last Week |
Wk Chg |
Last Year |
Yr Chg |
|
Tax-exempt MMF |
1.95% |
2.35% |
-.40% |
2.91% |
-.96% |
|
Taxable MMF |
4.28% |
4.30% |
-.02% |
5.33% |
-1.05% |
|
|
|
|
|
|
|
|
2-Year Treasury |
3.90% |
3.88% |
.01% |
4.52% |
-.62% |
|
5-Year Treasury |
3.98% |
3.94% |
.05% |
4.14% |
-.16% |
|
10-Year Treasury |
4.42% |
4.35% |
.07% |
4.21% |
.20% |
|
30-Year Treasury |
4.95% |
4.86% |
.09% |
4.42% |
.53% |
|
5-Year Exp. Inflation |
2.45% |
2.39% |
.06% |
2.18% |
.27% |
|
|
|
|
|
|
|
|
2-Year Corporate* |
4.25% |
4.24% |
.00% |
4.90% |
-.65% |
|
5-Year Corporate* |
4.50% |
4.48% |
.01% |
4.73% |
-.23% |
|
10-Year Corporate* |
5.10% |
5.08% |
.02% |
5.08% |
.02% |
|
30-Year Corporate* |
5.74% |
5.71% |
.03% |
5.42% |
.32% |
|
|
|
|
|
|
|
|
2-Year Municipal** |
2.46% |
2.55% |
-.09% |
2.95% |
-.49% |
|
5-Year Municipal** |
2.64% |
2.69% |
-.05% |
2.87% |
-.23% |
|
10-Year Municipal** |
3.33% |
3.33% |
.00% |
2.94% |
.39% |
|
30-Year Municipal** |
4.85% |
4.92% |
-.07% |
4.06% |
.79% |
|
|
|
|
|
|
|
|
10-Year German Govt Bond |
2.73% |
2.61% |
.12% |
2.46% |
.27% |
|
10-Year U.K. Govt Bond |
4.62% |
4.54% |
.08% |
4.07% |
.55% |
|
10-Year Japanese Govt Bond |
1.51% |
1.43% |
.08% |
1.07% |
.43% |
|
10-Year Spanish Govt Bond |
3.33% |
3.23% |
.10% |
3.23% |
.10% |
|
10-Year Italian Govt Bond |
3.57% |
3.45% |
.12% |
3.78% |
-.21% |
|
|
|
|
|
|
|
|
Fed Funds |
4.50% |
4.50% |
.00% |
5.50% |
-1.00% |
|
Prime Rate |
7.50% |
7.50% |
.00% |
8.50% |
-1.00% |
|
Dollar*** |
$97.82 |
$97.18 |
$0.64 |
$104.44 |
-$6.62 |
|
CRB |
$300.37 |
$299.93 |
$0.44 |
$290.41 |
$9.96 |
|
Gold |
$3,367.40 |
$3,342.90 |
$24.50 |
$2,421.90 |
$945.50 |
|
Crude Oil |
$68.51 |
$67.00 |
$1.51 |
$82.62 |
-$14.11 |
|
Unleaded Gasoline**** |
$2.19 |
$2.12 |
$0.07 |
$2.31 |
-$0.12 |
Note: Municipal yields are as of the previous business day.
* Composite A
** General Obligation AA+
*** Int'l value of the U.S. dollar (Avg. exchange rate between the dollar and 6 major world currencies).
**** Futures price per gallon
Stock Market Update
The post-holiday week got off to a start with a flurry of tariff headlines, which put pressure on stocks. But the market seems to be getting somewhat immune to (or maybe just tired of) Trump Tariff Turmoil (TTT) actions. As the week progressed, stocks rose moderately even with the ongoing tariff headlines.
At the beginning of the week, President Trump began issuing tariff letters to a number of countries that have not concluded a trade deal. He established a 25% base tariff on both Japan and South Korea. He also announced tariffs on other countries, including South Africa and Malaysia. In conjunction with the letters, the July 9th deadline has been extended to August 1st, although it was noted that there would not be any more tariff pause extensions after August 1st. President Trump also announced plans to implement a 50% tariff on copper and a possible high 200% tariff on pharmaceuticals. As the week wore on, a 50% a tariff rate was initiated for Brazil (up from 10% on “Liberation Day”), with the president citing unfair treatment of former President Bolsonaro.
The Federal Reserve (Fed) released minutes from its June Federal Open Market Committee (FOMC) meeting. There were few surprises. All participants saw it appropriate to hold rates steady. Some members said they would be open to a rate cut as soon as July, while others voiced the idea of no rate cuts at all this year. Tariff risk and potential inflationary pressure remain the biggest overhangs, and the market is now pricing in two rate cuts by year-end. Potential splits by the panel on the rate trajectory have been a focus point given some post-June statements from members Waller and Bowman about potential for a July cut.
Along with tariff negotiations, corporate America’s 2nd quarter earnings season is moving to the front burner. The unofficial start to 2nd quarter earnings season starts next week. Wall Street is anticipating a sequential slowdown in earnings growth from the 1st quarter. Although there is concern about the impact of tariffs, the market is hopeful that there could be some upside surprises. The consensus growth rate for 2nd quarter year/year earnings has declined from 8.5% at the start of the year to 5.0% currently. This would be the lowest rate of growth since 4Q 2023 and sets a low bar of expectations in contrast to earnings growth of 7.3% in the 1st quarter. Several banks will report results next week and it is expected that earnings results will beat expectations due to gains in the trading division during the highly volatile quarter. Other possible positives could come from net interest income growth and investment banking and loan trends, amidst a continued benign credit backdrop.
On Thursday, a milestone was achieved. NVIDIA (NVDA) became the first company to hit a $4 trillion market capitalization level. The spectacular growth of artificial intelligence (AI) has been the major driver of this company’s meteoric rise. The relentless gains for this stock and other technology stocks helped the S&P 500 and Nasdaq Composite set fresh record closing highs on Thursday.
As of July 10, 2025
|
Index |
Current Week |
Month of Jul. |
YTD |
|
Dow Jones Industrial Avg. |
-0.39% |
1.31% |
5.91% |
|
S&P 500 |
0.04% |
1.26% |
7.54% |
|
Nasdaq |
0.15% |
1.29% |
7.22% |
|
MSCI EAFE |
0.29% |
0.43% |
20.44% |
|
Russell Mid Cap |
0.27% |
2.17% |
7.11% |
|
Russell 2000 |
0.65% |
4.09% |
2.23% |
