IGA Capital Weekly Economic Update – May 12, 2025

Joshua Hawley, CEO, IGA Capital

Macroeconomic Overview

Markets are entering mid-May with renewed clarity on interest rate trajectories and inflation expectations. Fed Funds futures now price in a cumulative rate cut of approximately 77 basis points by January 2026, with the next FOMC meeting on June 18 expected to bring a modest -17 bps cut. The implied Fed Funds rate is forecast to decline from 4.28% currently to 3.56% by early 2026, reflecting growing market confidence in disinflation and controlled economic deceleration.

The Federal Reserve’s updated dot plot confirms a 2025 median rate projection of 3.875%, aligning closely with market expectations and signaling a more dovish consensus. Treasury yields remain elevated yet stable, with the 10-year currently at 4.44%, down 6 bps week-over-week, but still near the top of its recent range.

SOFR Market Dynamics

Short-term rates show continued moderation. The 1M Term SOFR remains at 4.33%, while the 30-day Average SOFR stands at 4.29%, both reflecting limited volatility over the past month. Forward SOFR curves suggest a gradual downward slope, with 1-year SOFR projected at 3.81%, and 2-year rates declining further to 3.92%. This is consistent with expectations of easing financial conditions and declining inflation pressure.

Swap spreads also moved marginally tighter, with the 10-year SOFR swap spread at -0.52%, indicating stable demand for hedging and an orderly derivatives market.

Treasury & Yield Curve Outlook

The yield curve continues its bear-steepening reversal. The 2s/10s spread widened to 0.45%, up 13 bps year-to-date, while the 5s/30s spread increased to 0.77%, up 35 bps YTD. Market forecasts show the 10-year Treasury stabilizing around 4.10–4.25% through 2025, per Bloomberg’s analyst consensus.

Credit & Fixed Income

Agency bond yields have firmed slightly, with Fannie Mae Tier 2 10-year DUS loans pricing around 5.88%–6.18%, while Freddie Mac equivalents remain close at 5.63%–5.78%, depending on underwriting criteria and leverage. Corporate bond spreads remain compressed, particularly in BBB tranches, though marginal widening was noted in lower-grade names.

Equity & Real Assets

Equity markets remain resilient, led by tech-heavy NASDAQ (+9.6% MoM). REITs have staged a modest recovery, especially in multifamily and storage sectors. Mortgage REITs, however, continue to offer double-digit yields as a result of elevated leverage and interest rate volatility, with yields such as AGNC at 16.4% and Annaly at 13.8%.

Inflation Indicators

Headline CPI stands at 2.4%, with core measures continuing to ease modestly. Breakeven inflation expectations, based on 10-year TIPS spreads, imply subdued long-term inflation close to 2.0%–2.2%—further supporting rate cut expectations into H2 2025.

IGA Capital Commentary

At IGA Capital, we continue to advise our clients to monitor SOFR forward curves and Treasury yield normalization when planning floating-rate financing or refinancing fixed-rate portfolios. Our structured solutions, incorporating interest rate hedging strategies, remain vital for managing funding costs amidst evolving macro conditions.

For clients evaluating agency debt or project finance facilities, now is an opportune time to consider longer-term fixed-rate lock-ins before yield compression accelerates. Contact us to explore bespoke capital solutions tailored to your strategic financing needs.

Prepared by IGA Capital | Dubai – Mauritius – Wyoming

For institutional clients and partners. Not investment advice.

contact joshua@iga.capital for inquiries

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