2025 Weekly Update

Market update

The S&P 500 closed the week at 5,967.84, -0.15% lower. The Dow Jones closed at 42,206.82, +0.02%, with the Nasdaq higher by +0.21%. The volatility index VIX closed the week at 20.62, down from 20.82. The Euro Stoxx 600 fell -1.54%. 

The 10-year UST closed at 4.38%, down from 4.40% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 6bps. US Corporate Bond spreads: Investment Grade and High Yield spreads were unchanged at 89bps and 353bps respectively. German 10-year Bunds yield closed at 2.52% down from 2.53% a week before. In Europe, Corporate Investment Grade spreads widened +3bps at 108bps and High Yield widened +9bp at 339bps. 

The US Dollar Index (DXY) appreciated +0.53% last week and closed at 98.71. The Euro closed at 1.1523 (-0.23%); the Yen depreciated -1.40%, closing at 146.09 and the Swiss Franc depreciated -0.79%, closing at 0.8178. Gold closed at $3,368.39, depreciating -1.86%. Oil was higher, Brent closed at $77.01 (+3.75%) and WTI at $74.93 (+2.67%).

Macroeconomy

The Fed

The Fed kept the fed funds rates unchanged at 4.25-4.50%, as widely expected. The updated Summary of Economic Projections (SEP) saw the median dot still projecting 50bps of cuts by year end, but with a hawkish shift in the distribution as seven officials now expect no cuts this year (up from four in March). The median 2026 and 2027 dots also both moved higher by 25bps. Those shifts came as projected PCE inflation for 2025 and 2026 was revised up by +0.3pp and +0.2pp compared to March due to the expected impact of tariffs, to 3.0% and 2.4%, respectively. GDP growth saw a similar downward revision. In the press conference, Powell emphasized that uncertainty remains historically elevated, even if it has diminished since the last meeting in early May. The Fed Chair highlighted the risk that the impact of tariffs on inflation could be more persistent, though he acknowledged the “good news” that services inflation was slowing. He also indicated that the labor market remained solid, seeing recent signs of cooling as “nothing concerning”. With Powell seeing policy as “well positioned to wait to learn more” on the impact of tariffs over the summer, this left a sense of the Fed being in no rush, even as “modestly restrictive” policy means rate cuts are still likely later this year.

Bank of Japan

The Bank of Japan (BOJ) has left short-term interest rates at 0.5% as widely expected in a unanimous vote after a two-day policy meeting. More importantly, it announced that it intends to slow the rate at which it reduces its bond purchases next year. Beginning in April 2026, it will decrease its bond purchases by approximately 200 billion yen per quarter, down from the current rate of 400 billion yen per quarter. This action is likely aimed at minimizing market disruptions while still providing adequate support for the Japanese economy amidst economic uncertainty arising from US trade policies. Furthermore, the BOJ indicated that it would perform an interim assessment of the plan to reduce bond purchasing in June 2026.

Bank of England

The Bank of England left their policy rate on hold at 4.25%, as widely expected, but the vote was 6-3 to hold, with the minority preferring a 25bps cut. Looking forward, they maintained their language about a “gradual and careful approach” to easing policy, and markets continue to price another cut at the August meeting as likely. So, if realized, that would continue the pattern of quarterly rate cuts since the easing cycle began last summer.

SNB

The Swiss National Bank (SNB) reduced its policy rate by 25bps to 0.0%, as expected, to counter "lower inflationary pressure." June’s rate cut marks the sixth consecutive reduction and brings the rate to its lowest level since September 2022. The key messages in the policy statement remained broadly unchanged from March. The SNB’s inflation forecast was revised downward across the entire forecast horizon. Headline inflation is now projected to average 0.2% in 2025, 0.5% in 2026, and 0.7% in 2027, compared to previous forecasts of 0.4%, 0.8%, and 0.8%, respectively. The tone during the press conference was somewhat more hawkish than anticipated, suggesting that the threshold for implementing negative rates remains high.

Norges Bank

Norges Bank cut rates by 25bps, despite widespread expectations for a hold. Unlike a lot of other central banks, they had not yet cut rates from their peak after the tightening cycle of 2021-23, so it was an important move, and the statement said they felt it was “appropriate to begin a cautious normalization of the policy rate.” With the decision coming as a surprise, that led to a noticeable weakening in the Norwegian Krone, which fell around 1% against the US Dollar.

Japan data

Japan's inflation data included a headline figure of 3.5% y-o-y (3.6% in April), a core CPI excluding fresh food of 3.7% (3.5%), and a core-core CPI excluding fresh food and energy of 3.3% (3.0%). The y-o-y increases in both the core and core-core CPI exceeded consensus expectations by a 0.1 percentage point. However, the actual y-o-y increases in the core and core-core CPI were 3.654% and 3.259%, respectively, so they only slightly exceeded consensus. The seasonally adjusted m-o-m increases were 0.5% for the core CPI and 0.3% for the core-core CPI. Short-term inflation momentum does remain. Japan's exports in May fell by -1.7% y-o-y, marking the most significant decline since September 2024, as the nation continues to face trade uncertainties. This decline was less severe than the -3.7% drop anticipated by Bloomberg but represents a reversal from the +2.0% increase recorded in April. Japan's trade deficit swelled to -637.6Bn yen in May, which is smaller than the expected -896.5Bn yen, compared to a revised deficit of -115.6Bn yen the previous month.

Highlights

On rates

It was a rather quiet week in the sovereign bond space despite a flurry of central bank meetings. In the US, the Fed press conference last Wednesday left investors with a sense that the Fed was in no hurry to rush rate cuts over the summer. Fed expectations held steady, with the market pricing in 20bps of cuts by the September meeting and 51bps by December. The 10yr Treasury yield ended the week at 4.38%, -2.3bps lower. The modest rally was supported by a flight to haven assets as events unfolded in the Middle East. Despite last week’s muted activity, April saw the largest monthly outflow of US Treasuries since December. Foreigners net sold USD 41bn of Treasuries, driven entirely by private investors, not official holders. Canada led the sell-off (USD 58bn) after hefty Q1 buys. Singapore, Hong Kong, and China collectively cut holdings by USD 39bn, while the UK added USD 28bn (now USD 779bn), likely via hedge-fund activity, making it the second-largest holder after Japan (USD 1,131bn, which rose slightly). European investors continue to build US Treasury positions while emerging Asia reduces exposure. Despite April’s net sales, foreign holdings remain stable at around 32% of total outstanding. Moving to European sovereign bonds, yields on 10Y Bunds (-2.2bps), Gilts (-1.5bps) and OATs (-1.1bps) moved lower over the week.

What to watch

• Monday: US PMI; Eurozone PMI; UK PMI; Japan, India, and Australia PMI; Korea June exports
• Tuesday: US Conference Board Consumer Confidence Survey; Canada CPI; Germany IFO Business Survey; Taiwan Industrial Production
• Wednesday: US home sales; Australia CPI
• Thursday: US Q1 GDP, Durable Goods Orders, Initial Jobless Claims; Germany GfK Consumer Survey; Hong Kong exports
• Friday: US Personal Income and Spending, PCE Price Index, University of Michigan Survey; Canada GDP; Japan CPI, Jobless Rate, Retail Sales; China Industrial Profits