Mutual Funds

The fourth quarter was marked by a 43-day government shut down and two Federal Reserve (The Fed) interest rate cuts. The Fed cut their target rate by 25 basis points (bps) in October and December in the face of less than perfect data due to the record long government shutdown, taking their policy rate to 3.50-3.75%. Muted impacts from tariffs, stable inflation and a cooling labor market provided the backdrop needed to implement the rate cuts. In addition, The Fed added Treasury bill purchases to support short-term funding markets, as uncertainty remained around the effects of the Trump administration’s policies. The Treasury curve steepened 15 bps as the municipal curve flattened by 8 bps during the quarter, however, remained steeper year-to-date. The 10-year Treasury yield increased slightly by 2 bps from 4.15% to 4.17% and the 10-year municipal (muni) yield decreased by 16 bps from 2.92% to 2.76%. The 10-year muni/treasury ratio fell to 66%. Demand for municipal bonds continued at a strong pace, supported by $50.7 billion in net fund inflows year-to-date, according to JP Morgan. Robust supply of tax-exempt debt persisted with roughly $580 billion issued in 2025. New issuance is up over 13% year-over-year. Refunding deals made up almost 26% of new supply and taxable supply comprised roughly 6%. Credit spreads ended wider for the year but were slightly lower quarter over quarter. In Q4, long-term maturities outperformed shorter maturities, and lower-quality bonds lagged higher-quality counterparts. Bloomberg's high yield muni index underperformed their investment grade index by 41 bps for the quarter.

For the fourth quarter, The Commerce Missouri Tax-Free Fund’s return of +1.67% outperformed the Bloomberg 3-15 Year Blend benchmark of +1.48%. Long durations were the most additive. The Fund’s exposures to the power, limited tax, and General Obligation (GO) sectors performed the best. Pre-refunded, higher education, and transportation sectors lagged.