As we pull to a close in 2025, we present below the yields on US Treasuries, AA corporates, AAA munis, and the taxable equivalent of AAA munis (using a 37% top federal tax rate) for the end of last year and here on the last day of 2025.
December 31, 2024:
Maturity | TSY | CORP (AA) | MUNI (AAA) | Tax Equiv Muni (37%) |
2 | 4.24 | 4.40 | 2.82 | 4.47 |
5 | 4.38 | 4.70 | 2.87 | 4.55 |
10 | 4.57 | 5.09 | 3.06 | 4.85 |
30 | 4.78 | 5.51 | 3.89 | 6.17 |
December 31, 2025:
Maturity | TSY | CORP (AA) | MUNI (AAA) | Tax Equiv Muni (37%) |
2 | 3.46 | 3.66 | 2.41 | 3.82 |
5 | 3.70 | 4.02 | 2.43 | 3.85 |
10 | 4.14 | 4.65 | 2.76 | 4.38 |
30 | 4.82 | 5.50 | 4.24 | 6.73 |
Some quick notes
In general, we saw yields come down in all asset classes except the long end of the market. Indeed the 10-year Treasury yield, which ended last year at 4.57%, rose to 4.80% in mid-January before the inauguration. Clearly, the “fear of Trump” that sent yields higher since September of 2024 was worse than Trump.
Yields on shorter-term paper came down across the board. Let’s look at the five-year range for good measure. Both Treasuries and corporate yields declined 68 basis points, reflecting an economy that showed signs of slowing and a Federal Reserve that started to cut interest rates again this year. The Fed cut ¼ point on the fed funds rate in September, October, and December of this year; and the expectation for further rate cuts in 2026 is certainly reflected there. Muni yields in the five-year range also declined 44 basis points, but on a taxable equivalent basis that equates to 70 basis points, which is on par with Treasuries and corporates.
Longer-bond yields were stubborn. Treasury yields in 30-year were 4 basis points higher and corporates down a basis point, but long munis had a tougher year, with longer bond AAA yields RISING 35 basis points during the year. The taxable equivalent yields at the long end of the muni market are 56 basis points higher. The culprit here was a combination of politics and volatility. Early in the year, talk about taxing munis and the volatility of tariff talk hurt the muni market overall but mostly the long end of the market (which is dominated in large part by retail investors). Further hurting munis was a supply bulge at the end of July, which was particularly untimely. It is important to remember that muni issuance set a record this year with approximately $575B in issuance, a 15% increase over last year.
Headline CPI at the end of last December was 2.9%. As of the end of November 2025, it was 2.7%. So, in real terms, most yields have come down this past year with the exception of longer yields. Tax-free longer-term yields are attractive, given that they have risen in the past year while inflation has come down. It is the one part of these graphs that has certainly increased in terms of value.
It appears that the inflation fears related to tariffs have not been realized. Remember that the effect on all markets from tariff talks was much more volatile when tariff talk first started in the spring. By now it’s old hat and less of an effect. Remember, there are substitution effects here, too. We do expect some continued slowing in the economy, and that argument has been strengthened by a move up in headline unemployment to 4.6% from 4.1% at the start of the year.
We hope everyone has a great start to 2026, and we will be back soon.
John R. Mousseau, CFA
Vice Chairman | Chief Investment Officer
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