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Fixed Income

Year-End Rally Extends as Fed Holds Steady

Issue 1Week ending December 29, 20252 sources

Canada 10Y3.55%-12bps
US 10Y4.24%-8bps
US IG OAS90bpstight
US HY OAS302bpstight
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Week Ending December 29, 2025

Year-End Rally Extends as Fed Holds Steady

§ 01

Key takeaways

Rates

Year-end rally pushed yields to multi-month lows. Position for consolidation in early January.

Credit

Holiday illiquidity masked true spread levels. Expect volatility as issuance resumes.

Hedging

Lock in gains on duration trades. Consider rolling hedges to March expiry.

§ 02

Executive summary

The year-end rally continued through the holiday-shortened week as central bank meetings concluded with dovish tilts. The Federal Reserve delivered a widely expected 25bp cut while signaling a slower pace of easing in 2026. Canadian yields fell sharply following the BoC's larger-than-expected 50bp cut. Thin liquidity amplified price moves across fixed income markets. Credit spreads held steady despite limited trading, setting up for potential volatility as primary markets reopen.

§ 03The only figures QMR plots itself

Market data

weekly snapshot

QMR MARKET BRIEF

Market posture

Week ending

Overall postureConstructive

Duration Bullish · Credit Neutral · Quality bias Positive · Policy uncertainty Elevated

Snapshot compiled Dec 30, 2025 · source dates vary

DurationBullish
CreditNeutral
Quality biasPositive
Policy uncertaintyElevated

Inputs used

Canada 10Y3.55%-12 bps WoW
US 10Y4.24%-8 bps WoW
IG spread90 bpsTight
HY spread302 bpsTight

Central bank watch

BankRate %Last moveNext decisionOutlook
BoCBank of Canada2.25-50 bpsDec 10Jan 28, 2026Pause expected after aggressive cuts
FedFederal Reserve4.25-25 bpsDec 17Jan 28, 2026Cautious stance for 2026
ECBEuropean Central Bank2.50-25 bpsDec 12Jan 30, 2026Further easing expected
BoEBank of England4.75HoldDec 19Feb 6, 2026Higher for longer
§ 04

Rates

2 points

Canada

  • The Bank of Canada surprised markets with a 50bp cut to 2.25%, citing weaker-than-expected growth and inflation at target. Governor Macklem signaled the aggressive cutting cycle may be nearing its end. Canadian 10-year yields fell 12bps on the week to 3.55%. The curve has bull-flattened significantly with 2s10s at -20bps.

United States

  • The Fed cut rates by 25bps as expected but the hawkish dot plot revision dampened enthusiasm. Chair Powell emphasized the need to see continued progress on inflation. U.S. 10-year yields fell 8bps to 4.24% despite reduced rate cut expectations. Treasury market liquidity was exceptionally thin with bid-ask spreads widening 30%.
§ 05

Key dates

2 events

Key Dates Ahead

DateEventRelevance
Jan 3FOMC MinutesDetails on December decision
Jan 10U.S. Employment ReportFirst major data of 2026
§ 06

Sources

2 sources

Sources & References

  • Bank of Canada
    Rate Decision Statement
    December 10, 2025
  • Federal Reserve
    FOMC Statement
    December 17, 2025