November Volatility Implications for Fixed Income Investors

What Happened?

The longest U.S. government shutdown finally ended in November after 43 days. Even after its end, the effects carried through the month. Several key releases were delayed, and the data that did come out often reflected timing issues. The next jobs report will arrive on December 16 and the CPI report on December 18—both after the December 9–10 Fed meeting. With that backdrop, the broad message stayed familiar: steady demand, softer hiring, and a more cautious tone going into year-end.

• Manufacturing stayed weak. ISM Manufacturing for October held at 48.7, with employment at 46.0 and new orders at 49.4, showing continued softness in goods.
• Services stabilized. ISM Services rose to 52.4, and S&P Global’s final services PMI printed 54.8, pointing to steady activity outside manufacturing.
• Labor softened but remained orderly. September payrolls (released November 20) increased 119k but the unemployment rate moved up to a worrisome 4.44% (almost rounding up to 4.5%) ADP showed +42k for October while weekly claims stayed in a 220–230k range.

More importantly, this was the last employment release before the December Fed meeting, and it did not offer a clearer view of the underlying trend.

Reference Yields for the Month:

• 5-year Treasury: 3.69% → 3.60%
• 5-year AAA Muni: 2.38% → 2.41% (Taxable Equivalent Yield ~4.07%)
• 10-year Treasury: 4.08% → 4.01%
• 10-year AAA Muni: 2.73% → 2.75% (Taxable Equivalent Yield ~4.65%)

Reference Risk/Return Snapshot for the Month:

All yield figures represent gross market yields and do not reflect the impact of fees or expenses. Index performance is not indicative of the performance of any particular investment. Indexes are unmanaged and their returns do not take into account any of the costs associated with buying and selling individual securities. Individuals cannot invest directly in an index. Past performance is not indicative of future results.

What Are We Thinking?

The overall picture remains one of a slow-cooling economy. Services continue to lead, manufacturing is still soft, and weekly claims point to a labor market that is easing but stable. With most of the major data prints pushed into mid-December, the Fed is heading into its next meeting with limited fresh information and a preference to move carefully.

Against this backdrop, we believe the bar for a December rate cut is lower than it seemed after the October meeting. Softer hiring, steady demand, and inflation readings not veering wildly above the Fed’s preferred range give the “Risk Management” minded Committee room to adjust policy, especially with so little confirmed data in hand. It is also telling that New York Fed President John Williams said policy remains “modestly restrictive” and that there is room for a “further adjustment in the near term” to move rates closer to neutral. In our opinion, Williams is part of the Fed’s leadership troika with Chair Powell and Vice Chair Jefferson, and this group rarely signals policy intent without a shared view. We believe that makes his language extra meaningful and telegraphs that the Committee is leaning toward a cut at the December meeting.

As we have throughout 2025, we remain positive on credit given corporate fundamentals, coupled with persistent institutional demand and limited net new supply anchoring credit spreads and performance. Per the Bloomberg U.S. Credit Index, investment grade corporate credit spreads were slightly wider versus comparable U.S. Treasury yields in the month. Corporate spreads are tight but we expect fundamentals and technical factors to remain supportive through year-end. Corporate bond demand remains strong on the back of attractive all-in yields. We continue to believe credit selection will be paramount if the focus shifts toward the ability of corporates to navigate macro uncertainty.

For municipals, year-end technicals continue to support the asset class. Issuance is light, reinvestment flows are steady, and the Treasury range has been stable. Intermediate AAA yields continue to look attractive on a taxable-equivalent basis, and we view any meaningful backup in yields as an opportunity to add high-quality exposure into December.

Bottom Line: Near-term attention remains on labor softening and a likely December cut, but the medium-term picture carries more uncertainty. The return of full expensing for capital investment on January 1, 2026, combined with the expected rebound from shutdown-delayed activity, could firm the growth baseline next year. It is too early to know how strong these effects will be, but they create a two-sided risk for long-duration rates. The base case remains orderly, yet a tail risk exists in which stronger activity and higher investment incentives may put some upward pressure on the long end as 2026 unfolds.