How About a Little Volatility?

At least with Groundhog Day, you know things are expected to change either sooner or later. Not so with markets. Solid demand for municipal bonds continues to keep that market moving forward along with stock market indices. We know what follows a low volatility period in markets: high(er) volatility. We just do not know when the change will happen.

In the metals market, the “when” came last week as silver plunged forty percent over a two-day period while gold “only” lost twenty percent. For those of you looking for alternatives out there, this is how markets work. Some happen quickly like the above metals, while Bitcoin and Oil have lost forty percent over a longer time frames with Bitcoin peaking in October 2025 and Oil in March 2022. All these markets have a way to go to catch our bellwether U.S. Treasury Bond, the 1.25% of May 15, 2050, which is back to trading below fifty cents on the dollar compared to the slight premium it traded at shortly after its issue in 2020.

Trends happen. Trends have been established in Bonds, though we know many argue that this is a buying opportunity. I am sure many continue to say the same about the markets discussed above. Things are beginning to happen, albeit slowly, particularly in the U.S. treasury bond market. Today, February 2^nd, the ten-year U.S. Treasury note closed at a 4.28% yield. This is the highest close since late August (save 4.29% on January 20^th). Why is this significant? The Federal Reserve cut its benchmark interest rate three times since late August, on September 17^th, October 29^th, and December 10^th, yet the ten-year note has failed to follow, reversing course after hitting 3.93% on October 17^th.

Expectations for further rate cuts by the Federal Reserve continue to be priced into the treasury yield curve. This is to say short term yields on treasury securities are low (3.5% to 3.8%, approximately) while longer term yields are rising now 4.25% to over 4.90%). But expectations are just that and they are subject to change, sometimes by a lot and sometimes quickly.

You have been lucky enough to live through one of the greatest asset price booms of all time. Owners of long-term bonds know, or should know, after almost six years since peaking that the price boom of Bonds is over, though investment professionals somehow continue to convince investors they should continue to own bonds. Hope appears to be their plan, and like expectations, hope can shrivel.

After huge moves in asset prices, Cash becomes king. Managing Cash through the tax-exempt, as well as taxable, municipal bond market is what we have been doing for our clients for many decades. We provide our clients with stability; your monthly statement is a testament to that. We continue to find select municipal bonds that we believe to be worthwhile in this market as well as for the trends that are established.

Copperas Cove Independent School District Bonds

Series 2026

AA- Underlying S&P AAA PSF Guaranteed

Due 2/15   Dated 2/1/26 Maturity 8/15/54

$79,110,000 Sold

Years   Maturity       Coupon        Yield*

1         2027             5.00%           2.26%

2         2028             5.00%           2.26%

3         2029             5.00%           2.50%

4         2030             5.00%           2.50%

5         2031             5.00%           2.36%

6         2032             5.00%           2.44%

7         2033             5.00%          2.53%

8         2034             5.00%          2.59%

9         2035             5.00%          2.69%

10       2036             5.00%          2.77%

11       2037**          5.00%          2.91%

12       2038**          5.00%          3.07%

13       2039**          5.00%          3.19%

14       2040**          5.00%          3.31%

15       2041**          5.00%          3.47%

16       2042**          5.00%          3.60%

17       2043**          4.00%          4.00%

18       2044**          4.00%          4.10%

19       2045**          4.00%          4.15%

20       2046**          4.00%          4.23%

21       2047**          4.125%        4.31%

22       2048**          4.25%          4.37%

25       2051**          4.25%          4.48%

28       2054**          4.375%        4.52%

*Yield to Worst (Call or Maturity) **Callable 2/15/36

Source: Bloomberg

This is an example of a new issue priced the week of 1/26/26. Provided for illustrative purposes only and is not a recommendation to buy or sell any specific investment.

This commentary is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Past performance is not indicative of future results. All investments involve risk, including the possible loss of principal. Prices, yields and availability subject to change. Investment return and principal value of fixed income securities may fluctuate, and bond prices are subject to interest rate risk, credit risk, and liquidity risk. Index data is provided for illustrative purposes only.