Resilient Labor, Resilient Valuations
July 15, 2025 By Sage Advisory
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
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