IGA Capital Weekly Economic Update

Joshua Hawley
May 27
2 min read

Week of May 26, 2025

Global Macro Overview

Markets continue to reassess the Federal Reserve’s rate trajectory in light of shifting inflation expectations and dovish Fed Funds futures. Current implied probabilities from futures markets now forecast an effective Fed Funds rate of 3.70% by January 2026, down from the current 4.33%, implying approximately six rate cuts by that time. While the FOMC’s dot plot remains more conservative with a 2025 year-end median rate of 3.875%, the bond market is signaling faster easing.

Sovereign bond yields rose globally, with the U.S. 10-Year Treasury yield climbing to 4.47% (+23bps MoM), while German Bunds hit 2.53% and Japanese 10Y JGBs rose to 1.45%, indicating stronger global growth expectations or a reassessment of central bank rate paths.

Meanwhile, U.S. inflation pressures appear to be easing. The April CPI print came in at 2.3% YoY, continuing a downward trend from last year’s 3.4%. In contrast, the UK saw a CPI surge to 3.5%, with Japan steady at 3.6%, indicating diverging inflationary paths across major economies.

Interest Rates & Forward Curves

The Treasury curve steepened modestly as short rates declined on Fed cut expectations. The 2s/10s UST spread rose to +49 bps, the widest it’s been YTD, reflecting a partial un-inversion of the curve and a shift in recession probability modeling.

SOFR forward curves are now pricing a 1-year trajectory from current 4.33% down to 3.45%, while forward Treasury yields show 10-year USTs at 4.80% by Q2 2026.

Equities & Commodities

Equity markets were mixed last week:

S&P 500 closed at 5,803, up 5.7% MoM
Dow Jones declined to 41,603, down 1.9% WoW
Nasdaq posted strong tech-driven gains, up 9.1% MoM

In commodities, gold edged lower to $3,297, while silver dropped slightly to $33.05. Oil declined to $61.86, down 13.9% YoY, suggesting continued oversupply or weak global demand signals.

Credit Markets

Yields across multifamily agency loans remain elevated:

Fannie Mae 10-Year Tier 2 pricing holds at 5.86%-6.16%
Freddie Mac 10-Year Fixed spreads are slightly tighter, ranging 5.68%-5.83% depending on DSCR and LTV.

Swap spreads are tightening, with the 10-Year SOFR swap spread now at -0.559%, indicating investor demand for duration amid expectations of lower rates.

REIT Performance

Public REITs are showing resilience amid rate volatility. Notable standouts:

AvalonBay (AVB) trading at $198.03, 17% off 52-week highs
Simon Property (SPG) yielding 5.3%
Mortgage REITs like AGNC and TWO yield over 16%, reflecting high leverage and risk premiums.

Outlook

Markets are now focused on upcoming PCE inflation data, GDP revisions, and the next FOMC minutes release. Rate cuts are now expected to begin by July 2025, barring upside surprises in inflation.

For our clients, this presents a unique window for long-duration fixed-rate debt before benchmark rates decline further and spreads potentially widen. IGA Capital continues to advise sponsors on how to lock in favorable pricing across agency, DFI, and structured private credit markets.

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Joshua Hawley

Founder & CEO,

IGA Capital