Muzinich Weekly Market Comment: Close & Open

October 6, 2025

If you have any feedback on this article or are interested in subscribing to our content, please contact us at opinions@muzinich.com or fill out the form on the right hand side of this page.

--------

The new quarter and fiscal year in the US opened on a subdued note for fixed income. US Treasuries posted modest outperformance in the government bond space, while corporate credit held firm, with US investment grade as the pick of the week.

The US government bond curve bull-steepened after a surprisingly weak ADP employment report showed the private sector shed 32k jobs in September. Notably, ADP periodically recalibrates its data against the Bureau of Labor Statistics’ broader series, and in September, revised September payrolls down by 43k versus pre-benchmark figures. This adjustment has likely exaggerated near-term softness. However, ADP emphasized that the broader employment trend remains intact, with job creation continuing to lose momentum across most sectors.

This week’s focus on the ADP report was largely driven by the US federal government entering a shutdown at 12:01 a.m. EDT on October 1, 2025. The shutdown is not due to a lack of funds, which only occurs when the debt ceiling is reached. The recently passed “Big Beautiful Bill” raised the debt ceiling by US$5 trillion to US$41.1 trillion, and the next limit is not expected to be reached until 2028.

Rather, the shutdown occurred because Congress failed to pass funding for fiscal year 2026, resulting from a partisan impasse. Lawmakers are disagreeing over federal spending levels, foreign aid cuts (rescissions), health insurance subsidies (Affordable Care Act tax credits) and other policies, leaving the government without an approved budget.

This is not uncommon—the current shutdown is the ninetieth since 1976. Historically, the median length is only 2–3 days, often over weekends, with only a few lasting more than a couple of weeks. However, this is the third shutdown under President Donald Trump’s watch and follows the 2018–2019 Trump-presided shutdown, which was the longest in US history at 35 days, driven primarily by disputes over border wall funding.

The immediate effect of the shutdown is the curtailment of many federal services. Agencies began implementing shutdown procedures on Wednesday morning, furloughing nonessential employees. Almost no federal workers—furloughed or not—will receive pay until Congress reaches an agreement, although all employees are expected to receive back pay once the shutdown ends.

Estimates of the economic impact vary. According to the Congressional Budget Office (CBO), a lapse in discretionary funding could furlough roughly 750,000 federal employees each day, with their total daily compensation amounting to about US$400 million. A White House memo obtained by POLITICO estimates that the US could lose up to US$15 billion in GDP (0.055% of GDP) for each week the shutdown continues.

As for the Federal Open Market Committee (FOMC), the committee is now “flying blind,” with neither the all-important Nonfarm Payroll nor CPI reports released until the government shutdown is resolved and federal services return to normal. This means the FOMC could enter its next policy meeting, scheduled for October 28–29, without key economic data.

Investors, however, appear to be betting on a short-lived shutdown, with the overnight interest rate swap market currently pricing in a 98% probability of a 25-basis points rate cut at the October meeting. However, without the government reopening, this may be overly optimistic, as the committee is data-dependent and currently missing key economic inputs to assess the state of the economy.

In an interesting contrast, as the US government closes, the German government finally opens. Germany had been operating under a provisional budget for much of 2025, following political instability and the collapse of the previous coalition in November 2024. This interim arrangement ended when the Bundestag approved the 2025 federal budget on September 18, followed by the Bundesrat’s approval on September 26. The approval allows the government to shift from stopgap financing to a fully authorized fiscal plan.

Throughout the first eight months of the year, federal spending from the core budget and the armed forces’ special fund reached €327 billion, implying a run rate of around €491 billion for 2025. With the new budget setting total planned spending at €564 billion, the government has scope to significantly accelerate expenditures in Q4. While it may still fall short of the full-year limit, the bulk of this year’s spending increase is expected to go toward consumption and social security, where the government could even risk overshooting the budget.

Although fixed income markets were quiet this week, the same was not true for other asset classes. Commodity markets saw a sharp decline in energy prices, which fell more than 7%, marking their largest weekly drop in over three months (see Chart of the Week). While the announcement that President Trump and Israel’s Prime Minister Netanyahu had agreed on a 20-point plan aimed at ending the war in Gaza may have contributed to downward pressure, the likely primary catalyst was investor anticipation that OPEC+ will announce further production increases at its upcoming meeting on Sunday, which will determine output for November. The International Energy Agency now expects the glut to expand to record levels next year, partly due to the return of OPEC+ production.

Elsewhere, precious metals, Bitcoin and foreign currencies (supported by US dollar weakness) rallied, benefiting from uncertainty around the US government shutdown. Meanwhile, equity markets continued to melt up, largely ignoring the broader macro risks of the week. Sentiment was buoyed by AI euphoria and FOMO (fear of missing out), alongside optimism over supportive monetary policy, with high conviction that the FOMC will cut rates and that there will be an acceleration in fiscal spending, as seen recently in China and now Germany.

Chart of the Week: The one asset not rising in price - The trend in oil prices is lower?

Source: Bloomberg, as of October 3, 2025. For illustrative purposes only.

Past performance is not a reliable indicator of current or future results.

 

This material is not intended to be relied upon as a forecast, research, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Reference to the names of each company mentioned in this communication should not be construed as investment advice or investment recommendation of those companies. The opinions expressed by Muzinich & Co. are as of October 3, 2025, and may change without notice. All data figures are from Bloomberg, as of October 3, 2025, unless otherwise stated.

--------

Important Information

Muzinich & Co., “Muzinich” and/or the “Firm” referenced herein is defined as Muzinich & Co. Inc. and its affiliates. This material has been produced for information purposes only and as such the views contained herein are not to be taken as investment advice. Opinions are as of date of publication and are subject to change without reference or notification to you. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. The value of investments and the income from them may fall as well as rise and is not guaranteed and investors may not get back the full amount invested. Rates of exchange may cause the value of investments to rise or fall. Emerging Markets may be more risky than more developed markets for a variety of reasons, including but not limited to, increased political, social and economic instability, heightened pricing volatility and reduced market liquidity. Any research in this document has been obtained and may have been acted on by Muzinich for its own purpose. The results of such research are being made available for information purposes and no assurances are made as to their accuracy. Opinions and statements of financial market trends that are based on market conditions constitute our judgment and this judgment may prove to be wrong. The views and opinions expressed should not be construed as an offer to buy or sell or invitation to engage in any investment activity, they are for information purposes only. Any forward-looking information or statements expressed in the above may prove to be incorrect. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation that the objectives and plans discussed herein will be achieved. Muzinich gives no undertaking that it shall update any of the information, data and opinions contained in the above.

United States: This material is for Institutional Investor use only – not for retail distribution. Muzinich & Co., Inc. is a registered investment adviser with the Securities and Exchange Commission (SEC). Muzinich & Co., Inc.’s being a Registered Investment Adviser with the SEC in no way shall imply a certain level of skill or training or any authorization or approval by the SEC.

Issued in the European Union by Muzinich & Co. (Ireland) Limited, which is authorized and regulated by the Central Bank of Ireland. Registered in Ireland, Company Registration No. 307511. Registered address: 32 Molesworth Street, Dublin 2, D02 Y512, Ireland. Issued in Switzerland by Muzinich & Co. (Switzerland) AG. Registered in Switzerland No. CHE-389.422.108. Registered address: Tödistrasse 5, 8002 Zurich, Switzerland. Issued in Singapore and Hong Kong by Muzinich & Co. (Singapore) Pte. Limited, which is licensed and regulated by the Monetary Authority of Singapore. Registered in Singapore No. 201624477K. Registered address: 6 Battery Road, #26-05, Singapore, 049909. Issued in all other jurisdictions (excluding the U.S.) by Muzinich & Co. Limited. which is authorized and regulated by the Financial Conduct Authority. Registered in England and Wales No. 3852444. Registered address: 8 Hanover Street, London W1S 1YQ, United Kingdom.