US Treasuries
- The 10-year Treasury yield is currently 4.19%, 2 basis points higher on the week. 10-year bonds traded in an 8 basis points range this past week (4.12% to 4.20%).
- 2-year Treasuries are at 3.55% this morning, 8 basis points higher since last Monday.
Fed Chairman Powell’s Sunday evening video message
Statement from Federal Reserve Chair Jerome H. Powell - Federal Reserve Board
Both equities and bonds are trading off marginally this morning with renewed concern about the independence of the Federal Reserve. In a video announcement last night, Fed Chairman Powell indicated that the Justice Department has initiated an inquiry and is threatening to indict Chairman Powell for possibly misleading testimony to Congress with the discussion of the cost of the renovation of Fed buildings exceeded the budget. Powell stated that the threat of indictment is a pretext by the President because the Fed has resisted calls for massive interest rate cuts.
Treasury yields were under mild pressure late last week, as investors assessed the economic outlook after the US employment report showed soft job growth along with an improved unemployment rate. Nonfarm payroll growth in December was a meager +50,000 new jobs versus +70k forecasted and November’s +56k, as revised. Job growth was also revised down by -68,000 for October, -8,000 for November. The last three readings for “private payrolls” are now +1K, +50K, and +37K, for an average of +29K per month. Arguably a very weak jobs report. However, the unemployment rate, a key driver for Fed monetary policy, improved to 4.4% versus November’s 4.5%, as revised. Bond investors concluded that the payroll report isn’t sufficiently weak enough to allow the Fed to cut rates again at the end of January and will now focus on the CPI inflation numbers tomorrow morning for further insight.
Last Week’s Economic Data (Selected)
Hard Data
- ADP Employment Report (Dec): +41,000 private payrolls, below consensus estimate of 48–50k but a rebound relative to November’s print at -29,000.
- JOLTS Job Openings (Nov): Printed at 7.46 million, versus 7.449m the previous month. Job openings moving lower reflect a weaker labor market.
- Weekly Initial Jobless Claims: Printed at 208,000 higher by 8 from the 200k the previous week, but still subdued.
- US Employment Report: Nonfarm Payroll for December printed at 50,000, below the 70k consensus estimate and November’s print at 56k, as revised. The unemployment rate for December printed at 4.4% and November’s level was revised to 4.5%, down from the previous announcement at 4.6%.
Soft Data (Surveys)
- ISM Manufacturing PMI: 47.9 for December slightly weaker versus November’s print at 48.2.
- ISM Services PMI: 54.4, for December, above 50 and firmly in the expansion territory. November’s print was 52.6.
- University of Michigan Consumer Sentiment (January preliminary): Sentiment printed at 54 improving slightly versus 52.9 in December. UMich consumer inflation expectations for the next year came in at 4.2%, 3.4% for the next 5-10 years.
Fed Monetary Policy
The Fed is likely to remain on hold at the January 28th FOMC meeting after the mixed employment report on Friday and without further data that the economy is softening or possibly a bond-friendly CPI print tomorrow.
The overnight Fed Funds rate is 3.64% (target range 3.50%-3.75%), after three ¼ point rate cuts at the past three FOMC meetings. The bond market is pricing-in nearly no chance of a rate cut at the end of January and two ¼ point cuts by year end 2026. The yield curve implies that the next rate cut will not occur until June, notably after Trump’s appointment of the new Fed Chair is in place.
My Take on Longer Term Yields
Ten‑year Treasury yields will likely stay in the current 4.10%–4.25% range until there is clear evidence that inflation is moving toward the Fed’s 2% target. By definition, the 10‑year yield reflects expected inflation over the coming decade along with spread for a real return and term risk. Last Friday’s University of Michigan survey shows consumers still anticipate 3.4% inflation over the 5–10‑year horizon, likely influenced by lingering concerns that tariff policy will continue to push prices higher. For 10-year yields to move toward 4% or below, markets will need signs of cooling inflation alongside labor‑market data pointing to slower job creation and a rising unemployment rate.
This Week’s Economic Data – See Economic Calendar attached
This week’s calendar is headlined by key inflation data, with CPI tomorrow (Tuesday) and PPI on Wednesday. We will also see some core data on the economy including the highly watched Retail Sales figures. There are also several regional Fed surveys that will provide insight on regional business conditions.
Agency CMBS Securities Spreads
At roughly 4:30 PM last Thursday, President Trump posted on Truth Social that he is instructing the GSEs to purchase $200 billion mortgage-backed securities to help narrow mortgage spreads, bring down mortgage rates and improve housing affordability. The news immediately pushed single-family MBS market tighter; Agency CMBS improved by about 8-10 basis points Friday morning.
CMBS market participants (dealers, investors) are meeting at the CREFC conference in Miami over the next few days. There is typically an optimistic tone coming out of this conference, especially now with the demand implications of the GSEs’ MBS buying program. But keep in mind, there are no details yet about implementation, feasibility, and ultimate impact of the Agencies MBS buying program. However, it seems that we may have entered a new phase for mortgage spreads; more to come.
The information provided in this article, including, without limitation, any opinions, predictions, forecasts, commentaries or suggestions, is for informational purposes only and should not be construed to be professional or personal investment, financial, legal, tax or other advice.