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▸U.S. Treasury volatility is expected to continue givenboth fiscal and monetary policy uncertainty. Thepotential impact of further policy changes oneconomic growth, inflation, and labor markets areunknown. We expect to see an ongoing steepening ofthe yield curve given the expectation for future Fedrate cuts.▸Federal Agency & Supranational spreads are likelyto remain at tight levels. Government-heavy accountsmay find occasional value on an issue-by-issue basis.▸Taxable Municipals continue to see little activity dueto an ongoing lack of supply and strong demandwhich continues to suppress yields in both the newissue and secondary markets. We expect fewopportunities in the near term.▸Investment-Grade Corporate bond fundamentalsand valuations weakened while technicals havemoved to modestly favorable. Progress on tradenegotiations and lower recession odds should provideupward pressure on fundamentals moving forward.We will selectively evaluate opportunities with a focuson industry and credit quality while analyzing richholdings to tactically reduce allocations in the sectorfor accounts where it makes sense.▸Asset-Backed Securities fundamentals remain intactand credit metrics have normalized. Consumer credittrends will depend on the labor market and theconsumer’s response to monetary policy easing,which tends to work on a lag. We expect spreads tostabilize heading into Q3 as issuance quiets over thesummer, but overall heightened volatility presents anopportunity to add allocations at more attractivelevels.▸Mortgage-Backed Securities are expected tounderperform over the short term, while rich currentvaluations will keep returns over the year positive. Wemay use any meaningful spread widening to add atmore attractive levels.▸Short-term credit(commercial paper and negotiablebank CDs) spreads in Q3 will continue to be subject toongoing debt ceiling dynamics or the Fed’s decision toslow the pace of quantitative tightening. Given thepositively sloped shape of the money market yieldcurve, we favor a mix of floating rate in the front endwith fixed rate in longer maturities.Fixed-Income Sector Outlook – 3Q 2025The views expressed within this material constitute the perspective and judgment of PFM Asset Management at the time of distribution (06/30/2025) and are subject to change. Information is obtained from sources generally believed to be reliable and available to the public; however, PFM Asset Management cannot guarantee its accuracy, completeness, or suitability.For the Quarter Ended June 30, 2025Market UpdatePFM Asset Management | pfmam.comCITY OF REDWOOD CITY227.A. - Page 28 of 6338