Mutual Funds

During the third quarter, with ongoing tariff negotiations and mounting employment risks, the Federal Reserve (the Fed) cut their short-term rate by 25 basis points (bps) to 4.00–4.25%. Chairman Powell framed the move as a “risk management” measure amid a divided Fed committee. The updated dot plot revealed a split policy outlook, with some members favoring no further cuts and others projecting multiple additional reductions this year. Meanwhile, the Fed’s economic projections showed slightly stronger growth and inflation expectations for 2026, as escalated political tensions over healthcare spending left the federal government on the brink of a shutdown at quarter-end. The Treasury curve steepened 3 bps as the municipal curve flattened by 11 bps during the quarter, however, remained steeper year-to-date. The 10-year Treasury yield decreased slightly by 8 bps from 4.23% to 4.15% and the 10-year municipal (muni) yield decreased by 34 bps from 3.26% to 2.92%. The 10-year muni/treasury ratio fell to 70%. Demand for municipal bonds continued at a strong pace, supported by $31.6 billion in net fund inflows year-to-date, according to JP Morgan. Robust supply of tax-exempt debt persisted with $433 billion issued thus far. New issuance is up over 12% year-over-year. Refunding deals made up 25% of new supply and taxable supply comprised 6%. Credit spreads ended wider quarter over quarter. In Q3, 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 137 bps for the quarter.

For the third quarter, The Commerce National Tax-Free Fund’s return of +2.50% underperformed the Bloomberg 3-15 Year Blend benchmark of +2.71%. Long durations were the most additive. The Fund’s exposures to the limited tax, General Obligation (GO), and transportation sectors performed the best. Pre-refunded, not-for-profit, and hospital sectors lagged.