Bond Market Update for 12.4.25

During the week of December 1–5, 2025, the bond market experienced significant volatility as U.S. Treasury yields first surged and then retreated reaching its highest level in two weeks. This was driven in part by weakness in Japanese government bonds and speculation around tighter Bank of Japan policy pushed yields higher. Heavy corporate bond issuance also added supply pressure, contributing to a rise in the term premium and weighing on liquidity. As the week progressed, however, weaker U.S. economic data revived expectations of an upcoming Federal Reserve rate cut, caused yields to ease off its highs. Markets were also digesting uncertainty around potential Fed leadership changes, which investors feared might introduce more aggressive policy shifts. The chemistry of global monetary dynamics, domestic issuance, and shifting expectations for Fed action defined a week marked by sharp swings in sentiment. Ultimately leaving investors focused on incoming data and policy clues as they assessed the path of interest rates heading into year-end. Municipal bonds were comparatively steady throughout the week, with tax-exempt yields seeing only modest adjustments despite the volatility in Treasuries. Steady demand and lighter primary issuance helped cushion Munis from the sharp swings seen in the broader fixed-income market.