Blue Rose Advisors Blog

On September 16, the Federal Open Market Committee raised the target range for the federal funds rate by a quarter point to 3.75%–4.00%, its first increase since 2023. The Committee’s updated projections, Wall Street economists’ expectations, and rate futures markets are converging on another hike before year-end, with futures pricing in three hikes by the end of 2027. The market’s message is “higher for longer”: as of September 25, the 1-month Treasury bill yielded 4.04%, the 3-month 4.24%, and the 1-year 4.50%.

For the first time in years, parking bond proceeds in cash costs money instead of making it. For borrowers in the municipal market, this is the opposite of the reinvestment environment to which they’ve gotten accustomed. The reflex to “stay short and stay liquid while the Fed cuts” no longer describes what we’re seeing on the front of the yield curve.

Our latest article examines the Federal Reserve’s decision to hold rates steady for the third consecutive meeting and what the resulting uncertainty means for tax-exempt borrowers and reinvestment options.

Given the focus on recent  activity of the Federal Reserve (Fed) and expectations of one  more Fed rate cuts over the next few months, many of our clients have asked us what that might mean for the interest rates that they might earn on their bond proceeds.  Accordingly, we reviewed the behavior of the Treasury market over the past approximately 20 years to see if we could identify quantifiable patterns and relationships between Federal Reserve activity and US Treasury securities. 

Prior to rejoining Blue Rose last month, I had the opportunity to sit on one of the Street’s reinvestment desks, where I submitted bids as a principal for many of the same products on which Blue Rose currently advises its clients.  Below are a few of the lessons learned during this time period and how your Blue Rose advisor can help you optimize your returns and avoid unnecessary pitfalls.

From one week to the next, borrowers may find that the indicative savings on their upcoming current refunding have diminished, or their estimated par amount for new money projects has increased beyond their expectations. Due to interest rate and credit spread volatility, deals may be delayed from coming to market and borrowers may face narrower options for investing their proceeds

The yield curve has significantly normalized in the past several months. We’ve discussed how the shape of the yield curve can impact reinvestment decisions in previous articles (such as “The Slope of the Yield Curve and How it Affects Refunding Escrows”) and now, as a result of the normalization in the current market, we are seeing more and more instances where open market securities (“OMS”) are outperforming State and Local Government Series Securities (“SLGS”)

As widely anticipated, the Federal Reserve cut interest rates by 25 bps on Wednesday, lowering the Fed Funds target range to 4.25 – 4.50%. The projections released for 2025 indicate only two additional rate cuts in 2025. This is lower than the projections released in September which had indicated four rate cuts in 2025. As a result, treasury rates in the 1-30 year range increased ~2-5 bps intraday on Wednesday. Conversely, very short-term rates fell slightly by 1-2 bps

The Fed decreased interest rates by 25 basis points at this month’s FOMC meeting. Despite this reduction to short-term rates, longer term treasury rates have risen ~17 basis points since November 4th – in large part due to market reactions to the results of the 2024 Presidential Election. President-Elect Trump’s campaign proposals have caused expectations for future economic growth in the US and created concerns about increased inflation in the coming years. This has resulted in a selloff of US treasuries.

The Federal Reserve cut interest rates by 50 bps at this month’s FOMC meeting. Many of our clients have asked us about the market implications following interest rate changes made by the Fed. Similar to the interest rate increases we’ve seen in recent years, this rate cut seems to have been priced into the market for taxable short-term rates prior to the FOMC meeting last week.