The End of a Move?

Sideways market movements can often seem perplexing. Just when you think interest rates should move one way, they meander the other; seemingly for months on end.

Welcome to the summer of 2025. Four months of longer-term U.S. Treasury yields ending little changed. The volatility of April saw interest rates plunge, then jump to even higher rates in May. Here we are at the end of unofficial summer after Labor Day with interest rates working their way back down to…normal?

This is how the bond markets act like a market. Several steps forward, one back. We have been here before: from the interest rate highs of October 2023 to a low in September 2024 I wrote often about the frustrations of a market in a correction.

The part of the bond market I care most about is the longer bonds. On this day before the monthly employment numbers are released (yes, by the Bureau of Labor Statistics), the thirty-year bellwether treasury trades at 4.88% (all prices and yields per Bloomberg). This yield is 94% of the 5.18% high back on October 23, 2023, and is much higher than 3.89% correction low on September 17, 2024. The trend for long term interest rates remains higher as I have said since March 2020 and the long end of the market is the place to see that most clearly.

Short-term interest rates, indicated by the six-month treasury bill, show a different picture. Today’s 3.96% yield sits on top of the spike low of 3.92% on April 7, 2025, during the height of April’s volatility and is down substantially from the 5.59% high of August 29, 2023. This summer’s plunge of yield on the six-month treasury bill puts the odds of a Federal Reserve rate cut of 25 basis points on September 17th at 95%, again per Bloomberg.

The Federal Reserve is a follower in my book, a follower of the six-month bill. Usually, employment data confirms the recent direction of interest rates so it would not surprise me if short term yields continued lower and the Federal Reserve comes through on September 17th with this first rate cut since December 18, 2024.

Unfortunately, it is those with cash in money market funds and other short-term instruments like treasury bills that have seen the effects of lower yields. These are generally not the moves you want to see as a holder of cash: a diminishing of your income.

Yet investing in longer-term bonds, where the trend is up in yield and down in price, remains problematic. That has not seemingly led to much selling as most seem content owning the long bonds they have and even buying more at these cheaper prices and higher yields. Yet the trend for higher longer-term interest rates (and lower portfolio values) shows no sign of abating.

The next move for interest rates may indeed be higher than the 5% yields we saw in ten-to-twenty-year treasury bonds and such a move, one might suspect, may finally test the resolve of long-term investors’ willingness to continue to own long-term bonds.

Postscript: Following Friday’s employment numbers, interest rates did continue lower, with the six-month treasury bill hitting 3.84%, which should almost assuredly be followed by a Federal Reserve quarter point rate cut on September 17^th.

Longer term rates also moved lower after the report. For me this is the end of something. I am looking for the correction trade of 2025 to reverse here, much like we saw last year when, coincidentally, September 17, 2024, was the low on the ten-year treasury at 3.60% (we hit 4.06% this morning).

The trend of long-term interest rates are the ones that impact your municipal bond portfolio performance. We continue to find worthwhile municipal bonds that we believe should perform, not just in a meandering market, but one that gives me strong signs of breaking down pricewise, as interest rates on longer term treasury notes and bonds surpass the 5% cap of the past twenty-plus years.

Be careful out there! Money market fund yields are decreasing, and packages of bonds (mutual funds and exchange traded funds) could be hit hard if longer-term interest rates do indeed rise.

City of Brownsville, Texas

Combination Tax and Revenue Certificates of Obligation

Series 2025

Aa3 Moody Underlying AA+ Underlying S&P

Due 2/15   Dated 9/25/25 Maturity 2/15/46

$142,200,000 Sold

Years   Maturity       Coupon        Yield*

2         2027             5.00%           2.37%

3         2028             5.00%           2.45%

4         2029             5.00%           2.48%

5         2030             5.00%           2.60%

6         2031             5.00%           2.78%

7         2032             5.00%           2.97%

8         2033             5.00%          3.15%

9         2034             5.00%          3.28%

10       2035             5.00%          3.44%

11       2036**          5.00%          3.70%

12       2037**          5.00%          3.87%

13       2038**          5.00%          4.00%

14       2039**          5.00%          4.12%

15       2040**          5.00%          4.23%

16       2041**          5.00%          4.35%

17       2042**          5.00%          4.50%

18       2043**          5.00%          4.60%

19       2044**          4.625%        4.831%

20       2045**          5.00%          4.78%

21       2046**         5.00%          4.83%

*Yield to Worst (Call or Maturity) **Callable 2/15/35

Source: Bloomberg

This is an example of a new issue priced the week of 9/1/25. Provided for illustrative purposes only and is not a recommendation to buy or sell any specific investment.

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.