Treasury yields increased last week, as the 10-year and 30-year yield both rose 12 bps. Municipal yields followed to a lesser extent, as the 10-year yield rose 2 bps, and the 30-year yield rose 5 bps. Municipal bond flows experienced $736 million of inflows, following $682 million of inflows in the prior week. Consumer sentiment improved in early December for the first time in five months, but the headline index still sits close to its lowest levels in nearly 50 years. On a three-month moving average, both ADP and nonfarm payrolls have been drifting lower, signaling a more subdued picture of labor demand. Headline PCE edged up by 0.1% in September, while core PCE dipped by 0.1% year-over-year. Despite these small moves, both measures have remained largely rangebound for the past 20 months, showing no evidence of runaway tariff-driven inflation. Overall inflation trends remain benign, and the Fed’s preferred supercore PCE continues to drift lower. Although this report is slightly dated, this is the last major inflation release before next week’s Fed meeting. Combined with softer spending, it strengthens the case for a 25 bp rate cut, with the current probability of the Federal Reserve cutting rates this Wednesday nearing 90%.

Treasury yields decreased last week, as the 10-year and 30-year yield both fell 4 bps. Municipal yields were largely unchanged across the curve. Consumer confidence fell another 6.8 points in November, sliding to its lowest level since April. The Expectations Index has now spent ten straight months below 80, the level historically associated with an elevated risk of recession. Open-ended responses continued to highlight concerns about inflation, prices, tariffs, and politics, with more frequent mentions of the federal government shutdown. Despite this backdrop, inflation expectations held steady in November, one of the few mildly reassuring signals in an otherwise downbeat report. Combined with a growing deficit of job openings represented by the differential of “jobs plentiful minus jobs hard to get,” rate cut probabilities increased with the current probability of the Federal Reserve cutting rates in December rising over 80%. In addition to likely Fed action in December, market participants will be digesting the news of the next Fed chair, which is expected to be announced in the coming weeks. National Economic Council Director Kevin Hassett is the heavy favorite to replace Jerome Powell.