Summary

• The labor market is softening, and inflation remains sticky.
• The Fed delivered a 25bps cut in September, focusing on future employment and inflation data for further rate cuts in 2025.
• Yields declined across the curve and spreads modestly narrowed.
• The Move Index declined favorably, with less volatility reflecting more comfort with Fed policy decisions.
• September saw a top five all time monthly performance with favorable conditions that will carry over into October.

Economics

The U.S. economy closed out September with a labor market that is showing clearer signs of slowing and inflation that remains uncomfortably above target. Job growth has downshifted meaningfully, with just ~22,000 jobs added in August and prior months revised lower. The unemployment rate has crept up steadily from 4.1% in June to 4.3% in August, and early estimates suggest September held at roughly that level. Weekly jobless claims eased back to around 218,000, but the broader trend points to rising slack rather than renewed momentum. The Federal Reserve acknowledged in its September meeting that job gains have slowed and unemployment has edged higher, a notable shift in tone.

On the inflation side, August CPI rose 2.9% year over year, with core inflation still elevated at 3.1%. That leaves both measures above the Fed’s 2% target, underscoring how sticky underlying price pressures remain. The central bank noted that inflation has “moved up and remains somewhat elevated,” even as growth slows. September CPI data will be released in mid-October and will be critical in determining whether inflation is bending lower or proving entrenched.

The tension for policymakers is clear: a labor market that is gradually losing steam versus inflation that has yet to convincingly retreat. If unemployment continues to drift higher, wage pressures could ease, helping bring inflation down over time. However, tariff impacts, supply chain frictions, and energy volatility pose upside risks to prices. The Fed responded in September with a 25-basis-point cut, signaling growing concern over downside risks to employment. Looking ahead, the balance of risks is shifting toward weakness rather than overheating, making the upcoming jobs and CPI prints pivotal in shaping the policy path into year-end.

US Treasuries

 

 

U.S. Treasury yields trended lower through September, reflecting softer economic data and growing expectations of Fed easing. The 2-year yield, a proxy for Fed policy expectations, fell from 3.64% at the start of the month to 3.59% by September 30, with a mid-month dip near 3.50% after weaker labor data. The 10-year yield peaked at 4.26% on September 2 but steadily declined to 4.11% into month-end, while the 30-year yield dropped from nearly 4.96% to 4.69% over the same period. This bull-flattening move was most pronounced early in the month, with the long end retracing from cycle highs as growth concerns mounted.

Curve dynamics reflected that shift: the 2s10s spread, which began September at roughly -62 bps, ended the month at -52 bps, showing a modest flattening reversal as the long end led the rally. The 5s30s spread also narrowed meaningfully from nearly +70 bps on September 2 to under +58 bps by month-end. In both cases, the curve remains deeply inverted by historical standards, signaling that recession risks remain elevated despite the Fed’s first rate cut of the cycle in mid-September.

Interest-rate volatility, as measured by the MOVE Index, declined meaningfully after spiking early in the month. MOVE started September near 85, rose briefly toward 90 around the September 3–4 selloff, and then eased back to the mid-70s by month-end. That moderation in volatility suggests markets are becoming more comfortable with the Fed’s pivot and the path of data, though the index remains elevated compared with pre-pandemic norms.

Overall, September’s Treasury price action underscored a market recalibrating to weaker labor prints, sticky but moderating inflation, and a Fed that has begun to shift its focus toward downside employment risks. With yields off their highs and volatility cooling, the setup into October hinges squarely on whether upcoming CPI and jobs data confirm the slowing trend or deliver another upside inflation surprise.

September: USD Investment Grade Credit

September 2025 marked one of the strongest months of the year in the high-grade primary market and ranks among the best ever. Over $200bn priced during the month, handily surpassing early syndicate forecasts of ~$150bn. The standout transaction came from Oracle’s $18bn six-part offering, an M&A-driven deal that drew peak books approaching $90bn and set the tone for robust demand throughout the month.

Sector mix was well balanced, though Financials once again anchored supply. Utilities, Technology, and Cyclicals also contributed meaningfully, though still trailed financial issuance by a wide margin. From a ratings perspective, BBB issuers led the way, with issuance spread fairly evenly across the spectrum apart from AA/AAA names, which made up just 1% of monthly volume.

Tenor preference skewed toward the belly and long end of the curve. Most deals clustered in the 3–7 year range or the 20+ year bucket, reflecting both investor demand for yield and issuers’ desire to term out funding at still-favorable levels. Market technicals remained supportive: the LUACOAS index finished September near 73 bps, just one basis point above its 52-week low, and roughly 8% below the highs seen earlier in the month. The LUACYW closed at 4.81%, sitting comfortably in the lower half of its 52-week range, while CDX IG ended near 52 bps, only a few basis points off cycle tights.

Looking ahead, October begins on solid footing. Historically, the month is seasonally strong, and early indications point to a healthy pipeline. We expect activity to be driven by financials post-earnings, alongside opportunistic prints from less frequent issuers looking to capitalize on the favorable backdrop. Barring a deterioration in macro conditions, government shutdown, or geopolitical shocks, the investment-grade primary market should continue to offer issuers attractive windows to raise capital efficiently.

September 2025 Tombstones

AmeriVet Securities is pleased to have participated in HSBC’s $1.5bn 11NC10, CitiGroup’s $6.5bn 3-part debt offering, Uber’s $2.25bn 2-part debt offering, Ares Strategic Income Fund $1.1bn 2-part debt offering, Wells Fargo’s $4bn 3-part debt offering, Bank of Nova Scotia’s $2.25bn 3-part debt offering, Bank of Montreal’s $2.25bn 3-part debt offering, Royal Bank of Canada’s $1.35bn 60NC10, and AT&T’s $5bn 4-part debt offering, reinforcing our commitment to delivering Tier II and Tier III investor access to high-quality issuers.

September Economic Calendar