Monthly market roundup: Bond shifts and dollar slips

Monthly roundup from TIAA Wealth Management’s Office of the CIO

September’s CIO Perspectives newsletter offers a deep dive into how the One Big Beautiful Bill Act (OBBBA) will impact bond markets. The new legislation brings mixed implications for Treasury, corporate, and municipal bonds. Other new TIAA Wealth Management research explores the factors contributing to the U.S. dollar’s weak performance this year.

Here are highlights from our investment team on these developments.

Mixed signals for bonds

The new legislation will worsen the federal budget deficit, which could prompt Treasury bond investors to demand higher yields, according to the report. The news is better for municipal bonds and corporate bonds, as the Act preserves municipal bonds’ federal tax exemption and adds tax incentives for business that should be good for corporate balance sheets.

Some other key takeaways:

• Treasury bonds: Larger budget deficits mean increased federal borrowing, which likely means increased Treasury issuance. Over time, that could put modest downward pressure on bond prices and upward pressure on yields across the curve.
• Corporate bonds: Accelerated expensing and other tax incentives improve corporate cash flow and financial flexibility, supporting strategic investments, debt reductions, and share buybacks. Certain issuers—specifically domestic manufacturers and businesses with large capital expenses relative to revenues—should benefit from the act’s corporate tax incentives.
• Municipals: The federal tax exemption for municipal bonds is preserved and expanded to new sectors, supporting infrastructure financing. Some fiscal pressures on hospital bonds and higher-education bonds will arise from reduced federal Medicaid funding and from higher taxes on the endowments of select private universities.

“All this highlights the importance of diversification,” writes Niladri “Neel” Mukherjee, TIAA Wealth Management’s chief investment officer. “These developments underscore why thoughtful, strategic selection of fixed income securities is especially important in today’s market environment.”

Dollar downer

It’s been a down year for the U.S. dollar in global currency markets. TIAA Wealth Management’s CIO team has published a FocusPoint report explaining why. The report identifies several factors behind the dollar’s woes, including tariff turmoil, concerns about the sustainability of federal budget deficits, and investors rebalancing portfolios that had been overweight U.S. assets.

The CIO team doesn’t anticipate the dollar losing its status as the global reserve currency any time soon. But their report does flag some longer-term concerns—mainly tied to tariffs—that could undermine the dollar’s value and its place in the global economy.

“Tariffs present a range of risks for the U.S. dollar,” according to the report. “We believe they might continue to gradually reduce foreign demand for U.S. assets relative to demand for non-U.S. assets.”

Additionally, the more isolationist economic stance promoted by the Trump administration is pushing global governments to implement policies aimed at improving domestic consumption and lessening reliance on the United States. “Our view,” the report continues, “is that this could continue to boost the attractiveness of non-U.S. assets relative to U.S. assets, which in turn should support a continued rebalancing of investment flows in favor of more diversified global allocations.”