The Federal Reserve is often perceived as a monolith. Policy decisions are usually described in collective terms — “the Fed raised rates,” “the Fed is watching inflation” — as if the institution speaks with a single voice. But that perception may soon be tested with attention shifting to the Fed’s future composition.

While President Trump recently ruled out firing Chair Powell — reducing the likelihood of a near-term leadership shake-up — the Fed’s evolving makeup and internal dynamics will be important to watch. What’s at stake isn’t just the direction of monetary policy, but how markets respond to a potentially more divided and politically influenced Fed. Leadership changes could have profound implications for interest rates, inflation expectations, and asset prices.

The FOMC’s structure reflects a balance between centralized authority and regional input. Twelve members vote on policy decisions: seven governors appointed by the President and confirmed by the Senate, the New York Fed president (a permanent voter), and four rotating regional Fed bank presidents. While all 19 participants contribute to policy discussions, only the designated 12 cast formal votes.

Since the mid-1990s, FOMC votes have been marked by an extraordinary degree of unanimity, with most decisions passing 12-0 or with only a lone dissent. This consensus-oriented approach became a hallmark of the Greenspan era and has largely continued under subsequent Fed chairs.

But it wasn’t always this way. During the 1980s, dissent was more common — particularly among the Board of Governors. At the time, the Fed was grappling with double-digit inflation, volatile interest rates, and a credibility crisis. Governors frequently broke with the chair over the pace and severity of tightening measures, with some worried about recession risks and others pushing for even more aggressive action to tame inflation. The stakes were existential, and the ideological divides within the Committee were sharper. The shift toward near-unanimity in the 1990s reflected not only a calmer macroeconomic environment but also a deliberate cultural shift to manage expectations and reduce market noise.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Federal Reserve, Sage

Today, navigating the Fed’s dual mandate — maximum employment and price stability — is increasingly complex. While the labor market remains healthy, it is showing signs of slowing. At the same time, potential inflationary pressures from tariffs are expected but not having a major effect on inflation readings.

Market expectations suggest that Trump would favor a Fed chair who is explicitly dovish and aligned with his pro-growth agenda. This could mean faster and deeper rate cuts, marking a sharp departure from Powell’s focus on restoring price stability through restrictive policy. Such a shift would raise questions about the Fed’s independence and internal cohesion. While a more accommodative FOMC might boost equities and credit in the short term, it could also trigger a bear steepening, greater inflation volatility, and rising risk premiums if markets begin to doubt the Fed’s long-term commitment to price stability

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

So far, markets have largely discounted this risk. Implied volatilities for rates, credit, and equities remain near multi-year lows. But dissent signals more than disagreement — it signals uncertainty. A 9-3 or 8-4 vote, especially with dissent from governors, suggests diverging views on the economy, the policy path, or the influence of politics. That could lead to increased volatility around FOMC meetings, greater market sensitivity to economic data, and a wider range of scenarios for rates, the dollar, and risk assets.

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

Over the long-term, income is the dominant driver of returns for most fixed-income asset classes, and municipal bonds are no different. In order to further enhance the income component, investors can take on various types of risk premiums, including credit risk, duration, structural and liquidity, just to name a few. Over time and as markets evolve, the relative value of each of these risk premiums can shift, creating opportunities for investors.

Source: Bloomberg

Within the last year or so, we have seen a significant rise in the issuance of bonds with mandatory put features. These bonds are typically issued with a 25-to-30-year maturity but are required to be tendered on the mandatory put date, which is typically within 10 years from the issuance date, thus making the put date the effective maturity date. These types of structures can offer an additional 15-30 basis points of spread over a similar security without the put feature. We view this additional income as highly attractive for the majority of puttable securities, given that any additional risk normally associated with the bonds can be contained with proper security selection.

Source: Bloomberg

Common Reasons Why Puttable Bonds Trade With Wider Spreads

Visual complexity — Municipal bonds with mandatory put features introduce an additional degree of complexity that certain investors may not feel comfortable with, thus causing them to avoid the securities altogether.

Market Liquidity — Historically these bonds have been less liquid than comparable callable or bullet maturities, however a recent rise in issuance and broader investor participation has significantly increased the liquidity pool. In fact, the larger issuance size for these types of structures can even enhance their market liquidity.

Tender Date Liquidity — The issuer is required to repurchase the bonds at a predetermined price on the tender date. However, if they lack sufficient funds to do so or are unable to access the capital markets, they could default on this obligation. Investors can protect against this risk by only purchasing bonds with mandatory puts from issuers who benefit from sufficient liquidity to repurchase the bonds outright if they are unable to access the capital markets to reoffer the bonds at the tender date.

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

Century Aluminum is considering development of the first new US aluminum smelter in nearly 50 years — a move that could revitalize the domestic industrial metals landscape. The company recently raised capital in the high-yield market with a $400 million 7NC3 senior secured note at 6.875%, signaling renewed investor interest in US-based metals production.

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

Strategic Supply Gap

In 2024, the United States imported approximately 3.6 million metric tons of aluminum, while domestic production totaled just 678,000 metric tons. Century already produces about 60% of all US primary aluminum, but with the US facing a 4 million metric ton deficit — and domestic output representing just 1% of global supply — the company has significant room to grow. A new smelter would not only reduce reliance on imports but also enhance supply chain resilience for critical industries like aerospace, defense, and clean energy.

Industrial Revival Meets Fixed Income Opportunity

Century’s bond issuance reflects a broader resurgence in US industrial investment, particularly in sectors aligned with national security and energy transition. For bond investors, this marks a shift from traditional commodity risk toward policy-supported infrastructure plays. The aluminum sector, once considered cyclical and globally oversupplied, is now being reshaped by tariffs, tax credits, and strategic supply concerns.

Policy Tailwinds

Century is benefiting from a confluence of policy support: Section 232 tariffs help level the playing field against subsidized foreign producers, such as China, and a $500 million DOE grant supports the buildout of domestic smelting capacity. IRA tax credits further enhance project economics.

Financial Discipline

Century Aluminum is poised for a breakout year in 2025, with projected EBITDA topping $300 million, more than double its 2023 EBITDA of $133 million. The company is also aiming to reduce net debt to $300 million and maintain leverage below 2.0x — a notable shift for a historically volatile credit.

Century’s recent bond issuance offers attractive relative value compared to other high-yield industrials, especially given its improving fundamentals and strategic backing. While the company’s high-cost structure and commodity exposure remain credit considerations, its partnership with Glencore PLC — a supplier, customer, and partial owner — provides additional stability.

Ripple Effects Across the Supply Chain

This isn’t just a bond deal — it’s a signal that investment in US aluminum is back on the industrial policy map. If Century moves forward with capacity growth, it will mark a turning point in the strategic importance of US smelting capacity — and a potential inflection point for investors looking to align yield with long-term structural themes.

 

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our web site at sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

Recent rhetoric from the White House has drawn attention to Federal Reserve Chair Jerome Powell, particularly regarding scrutiny of the central bank’s $2.5 billion headquarters renovation. While legal experts generally agree that a president cannot fire a Fed chair without cause, reports that the administration explored such an option — however unlikely — were enough to momentarily induce market volatility last week. Treasury Secretary Scott Bessent reportedly advised against any action, citing potential market instability and legal uncertainty.

The independence of the Federal Reserve is a cornerstone of US monetary credibility. Any hint of political interference tends to raise risk premiums, particularly around inflation and the integrity of long-term policymaking. A disorderly leadership change at the Fed would theoretically drive Treasury yields higher, weaken the dollar, and introduce volatility across asset classes.

The immediate market reaction reflected that dynamic. Equity indices dipped and credit spreads widened on reports of a potential removal, but both recovered quickly as subsequent comments downplayed the likelihood of action. Treasury yields moved modestly higher, consistent with a rise in term premium, but not dramatically so. This suggests that investors view the removal of the Fed chair as a headline risk rather than a near-term base case, and given the legal protection for Fed leadership and an institutional precedent, the probability of such an event is low.

More telling is the market’s resilience: credit spreads remain historically tight, and equities are grinding higher due to the growing confidence of a continued economic expansion. Financial conditions have actually eased over the past few months, driven by a weaker dollar and falling short-term interest rates.

Additionally, volatility across asset classes has remained relatively subdued compared to historical norms. The chart below illustrates the annualized one-month volatility for high-yield corporate bonds, Treasuries, and US equities — all of which are currently exhibiting lower levels of volatility than their respective 10-year averages.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

Meanwhile, tariffs remain a politically charged issue, but markets have shown far less sensitivity to each successive headline. That could be due to several factors: services and commodity-driven disinflation continue to drive aggregate inflation readings, imports make up a relatively small share of US GDP, and many importers preemptively frontloaded supply in the first quarter in anticipation of tariff escalation. The result is a market that increasingly sees trade policy as background noise rather than a primary macro driver.

Rather than fixating on the politics of central bank governance or trade disputes, markets appear focused on fundamentals: a backdrop of front-loaded fiscal stimulus, falling inflation, and the growing expectation that rate cuts are a matter of “when,” not “if.”

In many ways, the current environment resembles a “Goldilocks” economy — not too hot to reignite inflation fears, and not too cold to threaten growth. While risks remain, recent price action reflects a market narrative driven by the interplay between fiscal policy, disinflation, and Fed easing, with investors leaning into the idea that the macro backdrop still supports strength across the real economy and asset markets.

 

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our web site at sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

Second quarter earnings from the big six US banks surprised to the upside, revealing a resilient core: strong trading results, stable credit quality, and a late quarter rebound in investment banking activity. Despite macro headwinds and cautious expense management, most banks beat expectations — thanks to healthy consumer behavior, rising loan demand, and fortified capital. But the real story was a focus toward high-quality, fee-driven segments like wealth management. The takeaway? Capital strength is intact, but the winners are those leaning into durable, diversified revenue streams.

Morgan Stanley beat expectations, with Equity trading up 23% year-over-year — its second-best quarter ever. Wealth management brought in $59.2 billion in new assets, while IB revenue declined but less than feared, with most activity occurring late in the quarter. Expenses were slightly elevated, and CET1 came in at a strong 15%.

Goldman Sachs delivered a solid beat, with FICC sales and trading leading the way. Net revenue rose 15% year-over-year, and IB revenue surprised to the upside, particularly in advisory. Assets under management grew 12%, while provisions were below estimates. CET1 was 14.5%.

JPMorgan beat across most major lines, including FICC, equities, and all segments of investment banking — advisory, debt, and equity underwriting. It raised its NII forecast but also its expense outlook. Loans and deposits both beat expectations, and provisions and charge-offs were lower than anticipated. Compensation costs ticked higher, and CET1 came in at 15%, slightly below the 15.4% estimate but still healthy.

Wells Fargo beat on EPS but missed on Net Investment Income and cut its NII forecast. NII is now expected to be flat year-over-year. Assets surpassed $1.95 trillion for the first time, and like JPMorgan, the bank saw a pickup in IB activity in the latter half of the quarter. CET1 remained stable at 11.1%.

Citigroup beat expectations, with traders posting their best second quarter in five years — FICC rose 20%. IB fees climbed 13% year-over-year, and US personal banking had its strongest Q2 ever. Credit costs rose but were below expectations, and the bank teased a new premium card offering to rival Amex. CET1 stood at 13%.

Bank of America delivered a strong beat in Q2. Trading was a standout, with FICC up 19% and equity trading rising 9.6%, marking a record second quarter for the trading desk. Net interest income exceeded expectations, supported by resilient consumer spending and improving asset quality. CEO Brian Moynihan noted that consumers remain healthy and commercial borrower utilization rates are rising. Investment banking revenue declined 7% year-over-year, though activity picked up meaningfully in the second half of the quarter. Provisions came in below expectations, and the bank reported a CET1 ratio of 11.5%.

 

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

The US Labor market has remained remarkably resilient despite concerns about job cuts in the government sector and broader economic headwinds. Nonfarm payroll (NFP) growth has averaged around 150,000 per month over the past 3 months — closely aligning with the breakeven pace needed to maintain the unemployment rate near its historically low level of 4.1%. This steady job creation underscores the underlying strength of the economy, even as headline risks continue to dominate the narrative.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, BLS, St. Louis Fed

While geopolitical tensions, tariff uncertainties, and other macro risks persist, hard economic data continues to point toward ongoing expansion. Financial markets are echoing this optimism: equities are hovering near all-time highs, and corporate credit spreads are pricing in minimal risk. As shown in the chart below, corporate bond spreads are near the lowest percentile relative to the past 25 years — indicating no pricing of a near-term default cycle. In contrast, Agency MBS spreads remain relatively attractive, sitting at the 61st percentile, suggesting potential value in that segment.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

Ultimately, yield levels remain the dominant force behind investor flows. The chart below highlights the current percentile ranks of yields across various fixed income sectors. Investment grade (IG) corporates, for example, are yielding in the 64.5th percentile relative to the past 25 years — well above average. This elevated yield environment continues to attract inflows, particularly from investors seeking high-quality income opportunities in a low-volatility backdrop.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

 

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our web site at sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

On July 3rd, Congress approved the sweeping One Big Beautiful Bill Act, which was signed into law on Independence Day, meeting the deadline for the bill set out at the beginning of the year. The legislation pairs the extension of the 2017 TCJA tax cuts with delayed spending reductions, delivering immediate fiscal stimulus while deferring much of the budgetary pain.

While the tax relief takes effect immediately, the bill also expands funding for defense, border security, and immigration enforcement by hundreds of billions of dollars over the next decade. In contrast, the most substantial cuts to social spending, which include Medicaid reductions projected to exceed a trillion dollars over ten years and tightened eligibility for SNAP benefits, are deferred until after the 2026 midterm elections. This sequencing is deliberate: voters will see the benefits of lower taxes now, while the costs are delayed or potentially softened in the future.

The fiscal impact could be significant. The Center for a Responsible Financial Budget (CRFB) estimates the legislation will add $4 trillion to the fiscal deficit over the next decade, assuming the delayed spending cuts are implemented in full after future elections. Debt as a share of GDP is projected to climb from about 117% under current policy to over 127% by the mid-2030s, levels that would surpass the prior peaks set during the pandemic and World War II.

While these projections underscore long term sustainability risks, in the near term the large-scale deficit financing effectively acts as another round of fiscal stimulus, bolstering economic growth and, by extension, asset prices.

The legislation arrives against the backdrop of boosting an economy that remains firmly in expansion. Recent labor market readings have underscored continued resilience, with June’s payrolls report showing over 147k jobs added and the unemployment rate holding near historic lows. Higher growth via fiscal expansion could generate additional tax revenue, partially offsetting the deficit impact of the bill’s provisions. However, whether this revenue materializes at the scale necessary to meaningfully narrow the fiscal gap will depend on how long the current expansion endures and if accelerating economic expansion coupled with tariffs would reignite inflation.

The chart below shows the unemployment rate over time versus the US federal budget balance. Historically, we’ve only seen the current level of deficit relative to GDP when unemployment rates spiked.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, BLS, Treasury

Another factor that could partially mitigate the deficit impact is the administration’s aggressive use of tariffs. New import duties imposed in 2025 are projected by some to raise around $200 billion per year if trade volumes remain steady. However, tariff revenues are notoriously volatile and can be undermined by shifts in global supply chains, retaliatory measures, and aggregate demand. Even if fully realized, these receipts would offset only a portion of the new borrowing required to fund the bill’s provisions.

The Treasury Department will face mounting challenges to finance the widening deficits. In recent months, it has increased issuance of short-term Treasury bills to cover cash needs, a trend that is expected to accelerate. Currently, outstanding T-Bills as a percentage of outstanding Treasury debt stands near 21% and has room to increase.

 

 

 

 

 

 

 

 

 

 

 

 

Source: US Treasury, Sage

For markets, the combination of front-loaded tax cuts, large near-term deficits, and the Treasury’s intention to flood the short end of the curve with new bill issuance is especially important. By increasing the supply of T-bills while holding down the issuance of longer-dated Treasuries, the government effectively provides an abundance of collateral to money markets while constraining longer-term bond supply. This combination is likely to keep long-duration yields anchored and liquidity plentiful, conditions that tend to support higher valuations across equities, credit, and other risk assets.

Investors may welcome the stimulus and the relative scarcity of long bonds as a tailwind, even as questions about long-term fiscal sustainability remain unresolved. In many ways, the bill exemplifies the policy trade-off of the moment: short-term economic and market support in exchange for higher structural deficits that will eventually demand attention.

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our web site at sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

Standing at the midpoint of 2025, it’s clear that global markets have been anything but ordinary. From DOGE-driven political movements pushing for aggressive government spending cuts, the most sweeping overhaul of global tariffs in decades, and renewed geopolitical tensions in the Middle East, the first half of the year delivered a steady stream of market-moving developments. All of this played out against a backdrop of record budget deficits and a decelerating global economy. So how did markets respond? In this edition of Notes, we examine the first-half performance of key fixed income markets — highlighting steepening global yield curves, subdued inflation expectations in the US, and a notable absence of credit risk premium pricing.

US Treasury yields declined in the first half of 2025, led by the front end of the curve — a textbook bull steepening. But it wasn’t just a domestic phenomenon. Yield curves steepened across major developed markets, underscoring the global nature of the move. The reemergence of the “term premium” narrative has clearly extended beyond the US, reflecting broader concerns around fiscal sustainability and long-term inflation risks. Still, despite the headlines warning of runaway yields and eroding central bank credibility, actual market behavior paints a more tempered picture — one of an orderly repricing rather than disorder or panic.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

Market expectations for Fed policy have shifted meaningfully over the first half of 2025. At the start of the year, pricing implied roughly 1.5 rate cuts, but that number has climbed to 2.5 as inflation continues to decelerate and economic data has consistently surprised to the downside. The path hasn’t been linear, however— April saw a sharp spike in rate cut expectations amid heightened concerns over the impact of new tariffs. While the Fed remains data-dependent, the outlook is increasingly shaped by how much of these tariff pressures ultimately filter through to core inflation. For now, the market is leaning toward a more accommodative stance, but uncertainty remains high.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

Market-based inflation expectations have remained relatively stable through the first half of 2025, particularly in the US, where break-even numbers have shown little net movement. In contrast, breakeven inflation has risen in Japan, reflecting a gradual shift in domestic inflation and policy tone. The UK and Germany have seen notable declines, largely driven by falling energy prices and easing supply-side pressures. Despite the noise – from tariffs to geopolitical risks – US inflation expectations remain well-anchored.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

Credit markets have remained remarkably resilient through the first half of 2025. Despite a volatile macro backdrop, both investment grade and high yield corporate spreads are virtually unchanged on the year, each just 6 bps wider. High yield spreads briefly spiked to 450 bps during the April volatility episode, but quickly retraced, now sitting below 300 bps. The stability in credit risk premium suggests that, despite the headlines, investors continue to view corporate fundamentals as sound and systemic risk as contained.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Sage, Bloomberg

As we enter the second half of 2025, markets face a new set of challenges and catalysts. One of the most closely watched developments will be the debate over extending the 2017 tax cuts — a decision with significant implications for fiscal policy and Treasury supply. At the same time, the trajectory of economic data will remain front and center, particularly as markets assess how much of the recent tariff overhaul ultimately feeds into core inflation. With policy uncertainty still elevated and global growth showing signs of fatigue, the second half promises to be just as eventful as the first — if not more so.

 

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our web site at sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

There’s a new twist developing between President Donald Trump and Federal Reserve Chair Jerome Powell. What began as a difference in economic philosophy has evolved into a full-blown policy tug-of-war, complete with social media jabs, press conference poker faces, and enough market speculation to move yields.

The Core of the Conflict

President Trump has been vocal—especially on social media—about his dissatisfaction with the Fed’s current monetary policy stance. Following multiple rate cuts last fall, Powell has since adopted a more cautious tone, citing concerns over tariff-driven inflation and maintaining that the current policy rate is “mildly restrictive.” Trump, on the other hand, is pushing for further rate cuts to stimulate economic growth and reduce the federal government’s ballooning interest expense.

From a bond investor’s standpoint, this divergence is more than political theater—it’s a signal of potential volatility in rate expectations and market pricing.

The Trump Card: A New Fed Chair?

While Powell holds significant sway over the FOMC, his term ends in May 2026. Recent reports suggest that President Trump is considering announcing his pick for the next Fed Chair as early as this summer or fall—well ahead of the traditional transition timeline. This move, while unconventional, could be strategic.

An early announcement would allow the chair-in-waiting to shape market expectations, potentially nudging the Fed toward a more dovish stance even before Powell’s term concludes. For bond investors, this introduces a new variable: the possibility of a “shadow pivot” in policy direction, driven not by data but by political signaling.

Market Reaction: Reading the SOFR Tea Leaves

Despite Powell’s reaffirmation of a “wait and see” approach at the June FOMC meeting and in recent congressional testimony, the market appears to be pricing in a different outcome. The yield on March 2026 SOFR futures has fallen over the past few days, suggesting that investors are anticipating additional rate cuts in the coming quarters.

This divergence between Fed guidance and market pricing is a classic setup for volatility. If Powell holds firm and inflation remains sticky, yields could snap back upward. However, if political pressure or economic data forces the Fed’s hand, we could see a rally in the front end of the curve.

Strategic Implications for Bond Investors

The tension between President Trump and Chair Powell is more than a political spat—it’s a fundamental tug-of-war over the direction of U.S. monetary policy. Navigating this landscape will require vigilance, flexibility, and a keen eye on both Washington and the Fed’s next move.

In this environment, bond investors should consider the following:

• Duration Management: With uncertainty around the Fed’s path, maintaining a balanced duration profile is key. Overcommitting to either short or long duration could expose portfolios to unnecessary risk.
• Inflation Hedging: Tariff-driven inflation remains a wildcard. TIPS and other inflation-protected instruments may offer valuable diversification.
• Fed Communication Monitoring: Pay close attention to speeches, minutes, and any signals from potential Fed Chair nominees. These could offer early clues about future policy shifts.

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.

Fixed income investors are often caught in a balancing act: the pursuit of higher yields versus the need to manage risk. In today’s environment, where investment grade municipal bonds offer modest returns, many investors are drawn to high-yield municipal bonds for their significantly higher income potential. Historically, this strategy has paid off — especially when investments are made through diversified, commingled funds that offer liquidity buffers.

However, this approach can mask a critical vulnerability: the underlying illiquidity of many high-yield municipal securities. These bonds, often tied to niche or speculative projects, can be difficult to price and even harder to sell in stressed markets.

A recent and dramatic example underscores this risk. The Easterly ROCMuni High Income Municipal Bond Fund experienced a nearly 50% drop in net asset value (NAV) in just one day — falling from $6.15 on June 12 to $3.16 on June 13.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Bloomberg

This sharp decline was triggered by the fund’s forced liquidation of illiquid holdings, including debt from biofuel ventures, recycling plants, and retirement facilities — sectors known for their limited trading activity and opaque pricing.

 

 

 

 

 

 

 

 

 

 

 

 

Source: Bloomberg

Because municipal bonds are typically priced using models rather than actual market transactions, the gap between theoretical value and real-world sale prices can be vast — especially during periods of forced selling. This event highlights the potential for significant losses, even in a market segment that has delivered strong returns over the past decade.

At Sage, we’ve long emphasized the importance of liquidity and credit quality. Our commitment to investment-grade municipal bonds ensures that our clients benefit from transparency, stability, and real market pricing. While high-yield bonds can play a role in a diversified portfolio, investors must remain vigilant about the hidden risks — particularly those tied to liquidity and price discovery.

 

Disclosures: This is for informational purposes only and is not intended as investment advice or an offer or solicitation with respect to the purchase or sale of any security, strategy or investment product. Although the statements of fact, information, charts, analysis and data in this report have been obtained from, and are based upon, sources Sage believes to be reliable, we do not guarantee their accuracy, and the underlying information, data, figures and publicly available information has not been verified or audited for accuracy or completeness by Sage. Additionally, we do not represent that the information, data, analysis and charts are accurate or complete, and as such should not be relied upon as such. All results included in this report constitute Sage’s opinions as of the date of this report and are subject to change without notice due to various factors, such as market conditions. Investors should make their own decisions on investment strategies based on their specific investment objectives and financial circumstances. All investments contain risk and may lose value. Past performance is not a guarantee of future results.

Sage Advisory Services, Ltd. Co. is a registered investment adviser that provides investment management services for a variety of institutions and high net worth individuals. For additional information on Sage and its investment management services, please view our website at www.sageadvisory.com, or refer to our Form ADV, which is available upon request by calling 512.327.5530.