Week Ending December 29, 2025
Year-End Rally Extends as Fed Holds Steady
Week Ending December 29, 2025
Year-End Rally Extends as Fed Holds Steady
Executive Summary
📊 Overview
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.
📈 Rates
Canadian yields fell sharply following the BoC's larger-than-expected 50bp cut. Thin liquidity amplified price moves across fixed income markets.
💳 Credit
Credit spreads held steady despite limited trading, setting up for potential volatility as primary markets reopen.
Central Bank Policy Rates
12-month trajectory
Canadian Yield Curve
Government bond yields by maturity
Credit Spreads
Option-adjusted spreads over treasuries
Market Sentiment
Duration
Bullish
Credit
Neutral
Quality Bias
Positive
Policy Uncertainty
Elevated
Central Bank Watch
| Central Bank | Rate | Last Action | Next Meeting | Outlook |
|---|---|---|---|---|
| 🇨🇦Bank of Canada | 2.25% | -50 bps(Dec 10) | Jan 28, 2026 | Pause expected after aggressive cuts |
| 🇺🇸Federal Reserve | 4.25% | -25 bps(Dec 17) | Jan 28, 2026 | Cautious stance for 2026 |
| 🇪🇺ECB | 2.50% | -25 bps(Dec 12) | Jan 30, 2026 | Further easing expected |
| 🇬🇧Bank of England | 4.75% | Hold(Dec 19) | Feb 6, 2026 | Higher for longer |
Market Snapshot
| Metric | Current | Weekly Change | Status |
|---|---|---|---|
| 🇨🇦 Canada 10Y | 3.55% | -12bps | — |
| 🇺🇸 US 10Y | 4.24% | -8bps | — |
| IG Spread (OAS) | 90bps | — | Tight |
| HY Spread (OAS) | 302bps | — | Tight |
Rates Overview
🇨🇦 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%.
Key Dates Ahead
| Date | Event | Relevance |
|---|---|---|
| Jan 3 | FOMC Minutes | Details on December decision |
| Jan 10 | U.S. Employment Report | First major data of 2026 |
Sources & References
- Bank of CanadaRate Decision StatementDecember 10, 2025
- Federal ReserveFOMC StatementDecember 17, 2025