12/5/25: Bond Yields Rise Amid Fed Independence Concerns

The government shutdown is still causing data availability issues, including no employment report for November which would have been published this Friday. Private payroll data from ADP on Monday provided investors some insight on the employment situation, highlighting job losses of 32,000 in November and adding to concerns over labor market weakness, although we have yet to see this show up in unemployment claims which fell to 191,000 from 218,000 the prior week.

Manufacturing data for November was also released, coming in weaker than expected with the ISM index falling from 48.7 to 48.2, with readings above 50 indicating expansion and below, contraction, where it has been since late-2022. The new orders and employment components of the survey were similarly weak. Meanwhile the ISM services gauge edged up to a nine-month high, to 52.6, with the prices paid component indicating some easing of inflationary pressures.

Inflation data for September was released in the form of the Personal Consumption Expenditures Index, or PCE, the Fed’s preferred gauge. This data was also delayed because of the shutdown. PCE rose 2.8% year over year, and 0.3% month over month. On a core basis, excluding the more volatile food and energy components, it rose by 2.8% and 0.2% respectively, moderating but still above the Fed’s 2% target.

More importantly for bond investors, recent reports suggested that White House National Economic Council Director Kevin Hassett has emerged as the front-runner to succeed Jerome Powell as Chair of the Federal Reserve in May 2026. Hassett is loyal to President Trump and considered to be more ‘dovish’ in favor of looser monetary policy.

Bond yields rose this week in the wake of the news highlighting some concern over the independence of the Fed with Hassett as chair, and his ability to generate a consensus amongst the members which already appears strained. Indeed, the 10-year Treasury rose by 0.13% to 4.14%. We will be closely watching commentary from Hassett, if confirmed.

The Fed will meet next week and announce their rate decision on Wednesday. As the balance of risks has shifted from inflation to employment, we expect another 0.25% cut to a target range of 3.50-3.75%. In addition, we expect some further, modest easing in policy in early 2026. 

Next week: Leading Index, Housing Starts, Building Permits, Personal Consumption Expenditure Index (October), Producer Price Index, Job Openings and Labor Turnover Survey, Federal Open Market Committee Rate Decision.

© 2025 Chandler Asset Management, Inc. An SEC Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and ADP. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates.