Economic Commentary
- The JOLTS report showed just 7.15 million job openings in November, far fewer than the 7.65 million expected. October’s job openings total was also revised more than 200k lower, to 7.50 million. The ratio of job vacancies per unemployed worker was 0.9, the lowest since March 2021.
- In a new working paper from Harvard and University of Chicago economists, the actual tariff rate is only 14%, half of what was headlining several months ago, as bilateral deals and carveouts have diluted some of the earlier higher rates.
- The ISM Manufacturing index failed to rebound in December, instead falling further from 48.2 to 47.9, short of the median estimate of 48.4.
- ADP private payrolls added 41k in December, below the 50k consensus.
- The ISM Services index jumped in December from 52.6 to 54.4, above the median estimate of 52.2 and the highest since October 2024. The government is included in the ISM survey, so the unexpected increase may reflect reopening after the long shutdown. The surge was brought about by a beat in both new orders (from 52.9 to 57.9) and employment (48.9 to 52.0). The employment beat lifted this component to its highest since February and is the first expansionary print (above 50) since May.
- Nonfarm productivity increased 4.9% in Q3 and Q2 was revised up from 3.0% to 3.6%. Strong productivity could allow inflation to moderate despite robust growth.
- The monthly Federal Reserve Bank of New York survey showed that consumers’ view of the probability of finding a job if they lost theirs fell to 43.1%, the lowest in the 12.5 year survey’s history.
Our take: As we start to catch up on more economic data after the gap during the government shutdown, the picture that seems to be emerging is resilient growth AND a soft labor market. If productivity continues to be strong, unit labor costs can remain muted, and inflation could continue to moderate, allowing the Fed to ease rates to sustain growth. Friday’s payroll data and next week’s CPI will be important data points to watch, along with a possible Supreme Court ruling on tariffs as soon as Friday.
Corporate Bond Market Commentary
- Investment grade spreads were unchanged at +79bp last week and total returns were -0.22%, finishing the year +7.8%.
- LSEG Lipper reported a net weekly inflow of $985.2 million for Investment Grade funds .
- There was no IG new issuance last week. This week was expected to be $66 billion, and we got $90.4 billion through the first three days alone.
- HY spreads were -3bp tighter to +283bp and total returns were +0.20% last week.
- Fund flows were -$76.1 million last week.
- There was no HY new issuance last week, and $4.0 – $6.0 billion expected new issue volume this week. For the month of January 2026, Barclays U.S. High Yield Syndicate estimates High Yield bond supply of $20.0-25.0 billion vs. January 2025 Supply of $23.2 billion.
Our take: Investment grade bond new issuance roared out of the gate as expected, but the numbers are even higher than the highest syndicate estimates. This first wave of supply has been easily digested with minimal concessions, as many of the issuers are ‘frequent fliers’. The truer test will be when the cash piles set aside from the year-end lull and January 1 flows are depleted and a wave of AI-related or otherwise less vanilla supply comes, will spreads start to widen accordingly?
Municipal Bond Market Commentary
- The municipal bond index returned +0.13% last week and finished the year at +4.25%.
- Muni yields were -3, -2, -1 and +8 and ratios were +2%, -3%, -3% and -2% to 71%, 63%, 65%, and 85% at 1, 5, 10 and 30 years respectively.
- The preliminary new issue calendar this week totals $5.2 billion.
- Fund flows were +$1.036 billion with $1.245 billion into ETFs and $209 million out of mutual funds.
- Muni investors received $24 billion of principal and interest payments on January 1.
Our take: 30-day visible supply is only $12.4 billion, and 30-day redemptions are $13.7 billion, so the net supply picture is balanced starting off the year. However, dealers expect an increase in supply this year, so there will likely be episodes of at least mild indigestion during heavier weeks or months of issuance. This volatility could present attractive entry points to deploy additional cash into the municipal bond market.
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