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Q2 2025 Commentary and Investment Outlook

  • SWSCM
  • Jul 23
  • 3 min read

As we pass the halfway mark of 2025, we focus on a recent significant geopolitical event, a Federal Reserve that remains steadfast in current policy, and two fiscal policy events that shape our market expectations for the remainder of the year.


The U.S. brokered a truce between Israel and Iran after the U.S. military bombed sites that were used for uranium enrichment in Iran. The conflict added volatility to the financial markets, and could have lasted for an extended period of time, but was de-escalated after two weeks, calming the capital markets.


The current monetary policy of the Federal Reserve is to keep the federal funds overnight rate in the range of 4.25% to 4.50%[i] until it determines the effect of tariffs on prices and the overall economy.


As the quarter concluded, tariffs have been a consistent and evolving administrative priority that has created uncertainty in the financial markets. For all of the pivoting and posturing of the administration, financial markets experienced volatility, but have now settled to levels that might indicate confidence in the overall economy, suggesting businesses and consumers may be able to absorb the tariff costs due to strong business balance sheets and consumer savings. While easing inflation and steady job growth indicate stability, consumer expectations for the future are generally muted.


As of the date of this commentary, the One Big Beautiful Bill seems poised to pass in the House and Senate, and will be signed into law by President Trump on July 4. For all the prognosticators, both for and against, it will be budgetary law. The Federal Reserve will be better able to see the effects of fiscal policy on prices, the economy, and labor markets.


In the quarter, fixed income markets experienced a period of volatility, but generally posted modest gains. Chairman Powell emphasized a cautious approach amid economic uncertainty during the last FOMC meeting which helped to lower volatility during the quarter.



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Source: Bloomberg as of 06/30/2025


The yield curve for the quarter, as noted in the chart above, is generally the same shape with yield tenors one through ten shifting slightly lower. U.S. Treasury yields did fluctuate, but ultimately ended little changed. For example, the 10-year Treasury yield stabilized at 4.25%, down from earlier highs of 4.60%. Money market rates were relatively unchanged for the quarter, as noted in the chart. The yield on the 1-year Treasury Bill was little changed for the quarter at 3.98%, down from 4.03%.


Investment grade taxable bond spreads have remained mostly unchanged since the beginning of 2025. We mention this as spreads also experienced volatility in the quarter, but returned to levels seen at the start of the year, a similar theme to yields. Compared to January 1, corporate spreads with intermediate maturities are within four basis points and are lower for the quarter.[i]


In this current environment, short-to-intermediate duration and high investment grade focused strategies should provide relative stability in portfolios, compared with lower-rated/higher duration fixed income strategies. The Fed’s next set of moves this year will likely be rate cuts towards the latter half of 2025. Yields, while lower year-to-date, continue to provide historically attractive opportunities when compared to yields of the last two decades.

SWS Capital Management’s (SWSCM) philosophy is based on a value-oriented, active management style which emphasizes liquidity and risk management. Our strategies have a consistent investment philosophy. Security selection, sector allocation, and yield curve positioning are based upon our interest rate forecast as well as our fundamental economic outlook.


As always, we appreciate your business.


[1] Federal Funds Target Rate Lower/Upper Bound - FOMC

[2] Bloomberg US Intermediate Corporate Bond Index – June 30, 2025



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Source: Bloomberg as of 06/30/2025


Disclosure

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.  Past performance is no guarantee of future results, and the opinions presented cannot be viewed as an indicator of future performance. Investing involves risk including loss of principal. Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data. 





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