By Gayl Mileszko
Market Commentary
All that Glitters
Imagine being promoted to your dream job, a prominent post that you have worked hard to get for two decades. The moment arrives, you can’t stop smiling, you call your family and best friends to share the fantastic news. The announcement is quickly made public, surprising some, disappointing others, then sending a veritable shock wave through a segment of the financial markets that typically serve as havens from shock. Imagine you are Kevin Warsh being nominated to become the Chairman of the Board of Governors of the Federal Reserve System, arguably the second most powerful post in the United States and watching in astonishment as gold and silver prices plunged by as much as six trillion U.S. dollars. Within 24 hours of President Trump’s announcement on Truth Social, as much as $15 trillion was wiped from gold and silver prices. Fifteen trillion is half the size of the entire U.S. economy, more than double the size of the cryptocurrency market, more than the $11.5 trillion U.S. corporate bond market, and more than the municipal, agency and commercial paper markets combined. Hardly the congratulations, applause, and welcome from the markets Mr. Warsh would have liked to receive.
Gold, Silver, Bitcoin Prices Fall
The Warsh nomination has been just one of many market movers since January 30 as the environment has turned bearish for risk assets. Bitcoin is down 23% this year. AI disruption fears are battering software stocks; Microsoft lost $357 billion in value in just one day last week. But the assets that investors flock to in times of uncertainty and distress are also seeing stress and, in some cases, upheaval. Since the start of the month, 2-year Treasury yields are up 6 basis points to 3.58%, 10-year note yields are up 5 basis points to 4.28%, and the 30-year at 4.91% is 4 basis points higher. After months of skyrocketing commodity prices, volatility as measured by the VIX increased by 15% last week as gold prices dropped by as much as $1,099 from a record high of $5,585 and silver prices fell by $47 from its historic high of $120. Of course, not all of these losses are realized or permanent. At this writing, gold prices have climbed back up over $5,000 and silver is back over $91, good news for all the Olympic athletes in Milan about to watch the value of their already priceless medals rise.
Muse-ical Chairs
Prediction markets have been obsessed with prospective replacements for Jerome Powell for the past year. Since his return to the Oval Office, the President has trying to bully the Fed Chair into lowering interest rates more quickly and steeply. On top of the public browbeating, peppered by threats of firing and pressure to resign, the Department of Justice has launched a criminal investigation into Powell, related to his testimony on building renovations. The President believes that the case should be pursued until the end even though prominent Senators have committed to block all Fed confirmations until that matter is resolved. A standoff could drag on for months, raising the question of who would succeed Powell after his term ends in May. Steven Miran, the former head of the White House Council of Economic Advisors, remains on the Board until Warsh, or another nominee, is confirmed.
Promises and Reality Checks
Speculation had been running rampant with thousands betting real money on the successor to Chair Powell. Bets initially favored White House economic adviser Kevin Hassett, then Rick Rieder of BlackRock. Trading volume on these and other names in the prediction markets Polymarket and Kalshi in fact exceeded $511 million. There was never an issue of qualifications with any of the candidates. And there is broad consensus on Kevin Warsh’s bona fides given his M&A and academic credentials, previous role as economic policy advisor to President Bush, and past 5-year term as Governor, the youngest ever to hold the post. He has been a sharp critic of the Fed but proponent of its independence, positions held by many on The Hill and Wall Street. But some remain skeptical and wonder what he had to promise the President to get the nomination. Warsh, after all, was an adviser to the Trump campaigns and member of the 2024 transition team. And his views on rate cuts have evolved. He was selected after a months-long vetting process of 11 candidates conducted by Treasury Secretary Scott Bessent. Most likely, Warsh promised that he would do what he could to lower rates while protecting the perception of Fed independence, one that is separately at issue as the Supreme Court rules on the President’s power to fire Fed Governor Lisa Cook.
Hawks and Doves
If confirmed, Kevin Warsh will find himself as the head of an institution with 11 other members voting on policy and a staff of 3,000 who have all been data dependent for so long, it is hard to remember another perspective on rate setting. With interest costs now taking up 20% of the federal budget, a weakening labor market and worries over a new bout of inflation, it will be challenge to transition to a more strategic approach, one that perhaps involves more collaboration with Treasury and other agencies without re-raising global concerns over the Fed’s political autonomy. As Chair, he would need to build consensus from within after having adopted an adversarial role, accusing the incumbents of grave errors and indicating the need to “break some heads.” Warsh has advocated for reducing the Fed’s balance sheet and its “mission creep.” He has a reputation as an inflation hawk and would run the central bank at a time when he believes AI and other innovations, tax cuts and deregulation will result in higher productivity increasing the non-inflationary growth rate of our economy. We will see. But before that happens, he will need to get through the Senate hearing process and floor action that will be decidedly different than the one in 2006 when he was confirmed unanimously by voice vote.
Fiscal Policy Finally Being Set for FY26
The Senate, House, and President finally came to an agreement on full-year funding levels for the majority of federal departments and agencies four days into the latest partial government shutdown. The $1.2 trillion package provides operating money for Housing and Urban Development, Education, Health and Human Services, Labor, Transportation and Defense through September 30. The last remaining appropriations bill, for the Department of Homeland Security — which includes FEMA, the TSA, Coast Guard and Secret Service — is a work in progress. Funding at current levels continues for another 10 days as parties try to negotiate acceptable spending levels and terms for Immigration and Customs Enforcement, Customs and Border Protection, and other immigration agencies.
A New Monetary Policy Afoot
Financial markets always heave a sigh of relief when federal funding issues are resolved. Traders expected a quick resolution once the last continuing resolution expired on Friday night. Focus turns back to the Fed, which next meets in March, April, June, July, September, October, and November. Two Federal Open Market Committee voters, Miran and Waller, dissented at last week’s meeting, the first of eight this year, favoring a rate cut rather than a pause. But they were never expected to prevail and, in any event, the entire meeting, the outcome and press conference held by the stoic Chair Powell, became a nonevent, completely overwhelmed by the President’s tweet about the Warsh choice early Friday morning. Given that a confirmation will not be swift or easy, markets will not be calm. Something new is afoot: a monetary policy reset likely one that prioritizes a strong dollar, tighter policy, and an end to the unspoken assurance of endless liquidity and intervention to support the stock market. So, uncertainty reigns for now and there will be volatility during and between trading sessions. Individual, institutional, and algorithmic trading is bound to be jittery with exaggerated moves on rumors and headlines. This week, global eyes are on the basics: the 6 scheduled Treasury auctions, the 6 Fed officials on the speaking circuit, and corporate earnings from giants like Google, Amazon, Merck, and Pfizer.
Munis: Steady Market Presence and Performance Amid Uncertainty
Municipal bonds have demonstrated some of the most stability seen in the markets so far this year, certainly outperforming all other bond markets. The 2-year AAA General obligation benchmark yield at 2.16% is down 23 basis points at this writing, while the comparable Treasury is up 9 basis points. The 10-year yield at 2.62% has fallen 14 basis points, outperforming the 10-year note which has risen 11 basis points. The 30-year tax-exempt yield has risen 5 basis points, beating the 30-year Treasury which is up 7 basis points. Muni buyers are happy with yields, supply, and returns. So far this year, $7.8 billion has flowed into municipal bond funds; muni ETFs have seen 18 straight weeks of inflows. The ICE BoAML high yield index, a measure of sector performance, reported returns of 1.02% for January, outperforming both investment grade munis at 0.73%, Treasuries at 0.04%, high yield corporates at 0.48%, and the Nasdaq at 0.97%. The MSRB reported January issuance of $36.9 billion, a slight decline from last year.
Munis With Different Drivers Go Their Own Way
For tax-exempt buyers, muni yields remain attractive and a wide variety of credits and tenors are available. $20 billion of principal and interest was paid out on February 1, and that comes on the heels of $37 billion of January payments. Another $26 billion is on tap for later this month. It is highly unlikely that there will be a Fed Funds rate cut until June at the earliest, but the bond markets often end up driving that action. An examination of the last 5 Fed rate cuts proved that munis often go their own way, anyway. Variables including supply, fund flows, credit strength, and muni/Treasury as well as muni/corporate ratios. We note that, within one week, August 2024 and July 2025 Fed rate cuts caused AAA 10-year benchmark yields to fall 6 and 11 basis points, respectively. But in September 2024, yields were completely flat one week later. And in November 2024, muni yields actually spiked by 19 basis points; in October 2025, they rose by 2 basis points.
Grammy Week for Munis
The Recording Academy had its awards for outstanding achievements in music on Sunday, and this week, we anticipate some new records in our tax-exempt market. HJ Sims is a co-manager on the $635 million non-rated Build New York City financing for River’s Edge, one of the largest senior living start-up financings on record, expected to price on Thursday, February 5. We welcome all inquiries. In the charter school space, we may see a $275 million A+ rated Equitable Revolving Fund transaction coming through the Industrial Development Authority of Arizona. The North Carolina Medical Care Commission is also bringing $32 million non-rated financing for the Affordable Senior Housing Foundation Portfolio. The Michigan Finance Authority plans an $18.5 million non-rated sale for Arts & Tech Academy of Pontiac. And the Sierra Visa Industrial Development Authority has a $16 million non-rated financing for Desert Star Academy. We invite nonprofits to check with us on a huge pipeline of deals coming in the senior living, charter school, private school and student and workforce housing space. Please contact our for-profit group for more information regarding the wide array of opportunities that we are involved in as well.
Game Day 2026
For many shivering and snowbound Americans across the country, the pronouncement made by Punxsutawney Phil in Gobbler’s Knob on Monday was hugely disappointing. However, our national weather forecasting service points out that over the past 10 years, Phil has only gotten it right 30% of the time. For most of us on the couch glued to the TV this weekend, watching the Winter Olympics in Milan and Super Bowl in Santa Clara, the weather will not matter much anyway. Not much other than snacks and control of the remote will matter until next week. But after the ceremonies and competitions, medals, and commercials, we invite you to contact your HJ Sims representative to help up your game for 2026.