Muzinich Weekly Market Comment: Let’s Play Jenga*
Insight
November 10, 2025
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After “melt-up” October, November started on a choppy and defensive note. Government bond yields have edged higher globally, corporate credit spreads have widened, and both the Japanese yen and the US dollar have strengthened. Commodities and Bitcoin remain range-bound, while equities have softened across most major markets.
No single catalyst explains the shift. Instead, investors are probing the wall of worry, testing how firmly some of its bricks – growth, geopolitics, valuations, liquidity, and imbalances – are holding together in an investment version of Jenga (See Chart of the week 1). Put differently, sentiment has deteriorated. Our preferred gauge, the VIX index, recently breached the 20 level, suggesting uncertainty is on the rise.
The US stands at the heart of the current increase in global uncertainty, starting with the ongoing government shutdown, now the longest in history, dragging into its 38th day (as of November 7th). Estimates suggest the deadlock is costing the economy around US$15 billion per week, [1] while the Congressional Budget Office (CBO) projects the annualized quarterly growth rate of real Gross Domestic Product (GDP) in Q4 2025 could be 1.5% lower if the shutdown lasts 6 weeks, and 2% lower in an 8-week scenario. [2]
It is increasingly clear that the impasse is inflicting real damage. Compared with the previous record shutdown seven years ago, the economy today is more fragile, burdened by sticky inflation and a deteriorating job market. And unlike in 2018–2019, the current fallout extends beyond missed federal pay checks, affecting millions who risk losing full access to food aid.
The spill over into the private sector is also evident; government contractors are idled, tourism-related businesses are suffering from the closure of parks and museums and several of the nation’s busiest airports face delays due to shortages of air traffic controllers who are currently unpaid.
Investors are now contemplating a troubling scenario in which the shutdown extends beyond Thanksgiving, likely deepening the economic damage and weighing further on consumer confidence and spending during the critical holiday shopping season.
A further consequence of the shutdown is the lack of high-quality economic data on the US economy. With key government agencies closed, investors have been forced to rely on private-sector reports, which have a less consistent track record of accurately capturing the economic picture. Chair Jerome Powell has already indicated the FOMC (Federal Open Market Committee) could pause its easing cycle until policymakers regain a comprehensive view of the economy.
In the meantime, investors are struggling to interpret conflicting private-sector signals, adding another layer of uncertainty to an already fragile outlook – particularly for the labour market, where recent high-profile layoff announcements from major companies such as Amazon, Starbucks and Target have deepened concerns.
The first Friday of each month is typically one of the most anticipated dates on the calendar for investors and economists, as it brings the US Nonfarm Payrolls (NFP) report – the government’s key update on the labour market. However, due to the ongoing government shutdown, the last NFP release was in August, leaving markets without official data and forcing investors to rely on conflicting private-sector reports to gauge employment trends.
Initially, sentiment improved after ADP (Automatic Data Processing) data showed US companies added 42,000 jobs in October, exceeding the consensus estimate of 30,000 and suggesting tentative stabilization following two months of decline. [3] Yet, optimism quickly faded following a complementary report from Challenger, Gray & Christmas Inc., which revealed US companies announced 153,074 job cuts in October – the highest October total since 2003. The report cited particularly sharp reductions in the technology and warehousing sectors, attributing the layoffs to AI-driven restructuring, softening consumer and corporate spending, and rising costs. [4]
While investors were probing the growth brick, the geopolitics brick in the wall was also being tested. The US Supreme Court appeared skeptical of President Donald Trump’s sweeping global tariffs, with key justices suggesting he may have overstepped his authority. Chief Justice John Roberts, often considered a swing vote on the Court, remarked that the tariffs amounted to an “imposition of taxes on Americans, which has always been the core power of Congress”. [5]
The reversal of the IEEPA (International Emergency Economic Power Act) tariffs is far from a foregone conclusion. However, assuming all such tariffs are rolled back, the decision would likely trigger over US$100 billion in refunds and reduce average tariff levels by roughly 5%, based on the expected response from the administration. 6
In the near term, this would deliver a positive fiscal impulse, as the government deficit could widen by around 0.4% of GDP. On the supply side, inflationary pressures would likely ease, boosting real household incomes and supporting overall growth. Over the medium term, however, the higher government deficit would push the debt-to-GDP ratio higher; consequently, increasing the government’s funding costs. [6]
Meanwhile, early signs of liquidity pressure emerged in the banking system at the start of the month. Under normal conditions, the SOFR (Secured Overnight Financing Rate) – the rate on secured overnight repos collateralized by US Treasury or agency securities – would trade very close to the IORB (Interest on Reserve Balance) rate, the interest the Federal Reserve (Fed) pays banks on their reserve balances. Banks can park funds risk-free at the Fed at IORB, so dealers typically would not pay much more to borrow cash in the repo market.
When SOFR rises significantly above IORB, it signals stress in the repo market – either due to a shortage of cash or heightened demand for collateral (the latter is less likely here, as the Fed’s quantitative tightening programme is scheduled to run through December 1). This week, the spread between the two cash benchmarks widened to levels not seen for 5 years, (see Chart of the Week 2).
The rest of the world seemed relatively quiet by comparison. There were nine central bank policy meetings. Mexico and Poland cut rates by 25 basis points (bps) to 7.25% and 4.25% respectively, while the remaining banks held rates unchanged.
In Europe, the Bank of England (BoE) took center stage. As expected, the BoE held policy rates at 4%, but the decision was closely contested, with 5 members voting to keep rates unchanged and 4 favoring a cut to 3.75%. BoE Governor Andrew Bailey called the peak of UK inflation, noting September inflation of 3.8% was “likely to be the peak”, and assessing that the risks to inflation have recently become more balanced. While a 25bps rate cut in December now appears highly likely, the overnight interest rate swap market currently implies only a 70% chance that the cut will materialize. [7]
In China, export data disappointed, with shipments contracting 1.1% year-over-year in October as global demand failed to offset a sharp slump in exports to the US. While exports to other trading partners rose 3.1%, this was not enough to make up for the more than 25% decline in shipments to the US. However, with the US reducing tariffs on Chinese goods by 10%, trade between the world’s 2 largest economies could see a modest rebound heading into year-end. [8] While in a further show of improved relations between the two superpowers, the Chinese Ministry of Finance sold US$2 billion of 3-year dollar bonds and US$2 billion of 5-year dollar bonds. Total subscriptions reached a staggering US$118.2 billion, 30 times the issuance amount, with yields settling below equivalent US Treasury securities in the secondary market.[9]
Chart of the week 1: Wall of worry – let’s play Jenga*
For illustrative purpose only. *Jenga is a game of physical skill where players take turns removing one block at a time from a tower and balancing it on top, creating an increasingly unstable structure. The objective is to be the last player to successfully remove and stack a block without causing the tower to fall.
Chart of the week 2: Liquidity squeeze
Source: Bloomberg, as of 7th November 2025. For illustrative purposes only.
Past performance is not a reliable indicator of current or future results.
References to specific companies is for illustrative purposes only and does not reflect the holdings of any specific past or current portfolio or account.
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 November 7, 2025, and may change without notice. All data figures are from Bloomberg, as of November 7, 2025, unless otherwise stated.
References
[1] Bloomberg, ‘Longest Shutdown Costs US Economy About $15 Billion Each Week,’ November 5, 2025
[2] US Congressional Budget Office, ‘Re: A Quantitative Analysis of the Effects of the Government Shutdown on the Economy Under Three Scenarios,’ October 29, 2025
[3] Bloomberg, ‘US Companies Added 42,000 Jobs in October, ADP Data Show,’ November 5, 2025
[4] Bloomberg, ‘US Companies Announce Most October Job Cuts in Over 20 Years,’ November 6, 2025
[5] Bloomberg, ‘Supreme Court Appears Skeptical of Trump’s Global Tariffs,’ November 5, 2025
[6] BofA Global Research, ‘Washington Matters: IEEPA gets its day in court, ‘ November 6, 2025
[7] Bloomberg, ‘Bank of England Holds Rates at 4% and Tees Up December Cut,’ November 6, 2025
[8] Bloomberg, ‘Chinese Exports Unexpectedly Drop First Time Since February,’ November 7, 2025
[9] Bloomberg, ‘China’s MOF Sells Dollar Bonds at 3.646%, 3.787% in Hong Kong,’ November 5, 2025
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