Rising rates and heightened geopolitical uncertainty have created opportunities for our clients this quarter. We've used the volatility to harvest tax losses, shift portfolios toward even higher-quality bonds, and lock in more attractive yields and coupons. We will continue to monitor the global economy, corporate debt issuance, and the Treasury’s new debt management strategy for downstream effects on rates.

As markets continue to navigate shifting rate expectations and geopolitical developments, we expect volatility to remain a defining feature in the near term. However, the current backdrop of higher yields allows investors to be more selective, emphasizing income, quality, and disciplined positioning across municipal portfolios.

The Federal Reserve has continued the easing cycle that began in September 2024, leading to a rally in Treasuries out to roughly 7 years. On the long end, however, yields remain elevated as the bond market continues to be concerned about inflation risk, fiscal policy, and a rising term premium.

The third quarter of 2025 was marked by continued volatility in interest rates, persistent inflation concerns, and growing debate over the trajectory of Federal Reserve policy. From June 30 through September 30, longer-term Treasury yields remained elevated as markets wrestled with resilient economic data and uncertainty surrounding trade and fiscal policy.

Markets reacted sharply to “Liberation Day” on April 2nd, as newly announced tariffs triggered fears of trade wars, sending stocks lower and yields higher. Geopolitical tensions escalated as well, with rising conflicts involving Iran, Israel, and the U.S., prompting greater caution from corporate leadership as inflation risks remain tied to global trade dynamics.

It has been an eventful beginning to Donald Trump’s second Presidency. He ran on a platform promising improved border security, expansive tariffs, re-shoring to bolster manufacturing in the US, and a clear focus on reduction of government spending and fiscal responsibility (DOGE). So far, he is trying to make good on all his promises.

With the transition from the Biden administration to President Trump’s leadership, 2025 has already seen significant economic and geopolitical realignments. The U.S. dollar has gained strength as markets react to the administration’s protectionist stance, including proposed tariffs of 25% on Canadian and Mexican imports and 10% on Chinese goods. While much remains uncertain as these policies undergo scrutiny, one thing is evident: Trump’s presidency is already reshaping global expectations.

The 10-Year Treasury yield has diverged from historical patterns during the Federal Reserve’s current rate-cutting cycle. Notably, this marks the first instance in 30 years (1994) where the 10-Year yield has increased immediately following rate cuts.