By Serafino Tobia, Director of Agency CMBS Trading and Portfolio
- The 10-year Treasury yield is currently 4.15%, no change on the week. 10-year bonds traded in an 11 basis points range this past week (4.10% to 4.21%).
- 2-year Treasuries are at 3.49% this morning, 9 basis points lower since last Monday.
Early last week, Treasury yields moved to the upper end of the range, driven by upward pressure from rising yields in Japan, a healthy increase in JOLTS job openings, and concerns that the Federal Reserve may be adopting a more hawkish stance next year. The US Treasury sold $39 billion 10-year bonds at auction on Wednesday at 4.175% - pretty much on target.
Last Week’s Economic Data (Selected)
Hard Data
JOLTS Report – The Bureau of Labor Statistics (BLS) published both the September and October Job Openings - 7.658 million (Sept) and 7.670 million (Oct), versus 7.227 million (Aug). The higher number of job openings means companies are seeking workers and is a sign of a firmer labor market.
Weekly Initial Jobless Claims – Claims increased by 44,000 to 236,000 from 192,000 the prior week. However, the jump is largely attributed to seasonal distortions around the Thanksgiving holiday rather than a weakening in labor conditions. The four-week moving average, which smooths out volatility, stands at 216,750, indicating that claims remain stable.
Soft Data (Surveys)
- NY Fed Inflation Expectations: 3.2% 1-year; 3% 3-year horizon and 5-year horizon at 2.98%.
Fed Monetary Policy
Link to Fed Chairman Powell’s Post-FOMC Press Conference 12/10/2025
Last Wednesday, the Federal Reserve cut the overnight Fed Funds rate by 25 basis points (as widely expected), bringing the Fed Funds to 3.64% (target range 3.50%-3.75%). The rate cut was a 9-3 decision - Fed Governor Miran, Trump’s recent appointee, dissented in favor of a ½ point cut and both Chicago Fed President Goolsbee and Kansas Fed President Schmid preferred a pause, no cut.
The Fed also published its updated Dot Plot, showing policymakers’ projections for future rate levels. The median forecast for year-end 2026 is 3.375%, implying just one 25 basis point rate cut in 2026. This argues that the Fed Funds rate is near the neutral, only slightly restrictive.
Of course, in May next year, when Chairman Powell’s term ends, we will have a change in leadership at the Fed and arguably whoever Trump appoints, the new Chairperson will likely look to be more accommodating.
During the press conference, Powell emphasized the Fed’s dual mandate – goals of maximum employment and stable prices, noting the two objectives numerous times. In the summary of economic projections, the Fed is expecting the unemployment rate to move to 4.50% by year-end and decline in 2026 to 4.4%.
On inflation, the Fed projects PCE inflation to ease from 2.8% to 2.6% in 2026, and 2.1% in 2027 – no change from the Fed’s forecast in September. Higher tariffs are likely to create a temporary one-time boost in prices and the Fed aims to prevent these from becoming a persistent inflationary force.
The bond market continues to expect two rate cuts by the Fed next year (versus just one in the Dot Plot); as implied by the yield curve, the Fed Funds rate will be lowered by 0.545% by year-end 2026.
My Take on Longer Term Yields
10-year Treasuries need a new impetus to move back to 4% or below – such as new data that points to a weaker economy/labor market, a moderation in underlying inflation or a geopolitical or fiscal shift that changes expectations1 The reset over the past two weeks to 4.15% - 4.20% has been driven by higher yields in Japan, a likelihood of fewer Fed rate cuts in 2026, and an economy that is expected to remain stable and inflation to remain sticky near 3% driven by the pass-through of tariffs.
We will see the delayed November US employment report next Tuesday 12/16. However, in the post-FOMC press conference, Fed Chairman Powell expressed concern about the reliability of the governments data and that job growth may be overstated by about 60,000 per month since April. This suggests that new job growth may actually be negative. Bond investors were encouraged by these comments and Powell’s willingness to stand ready to address any weakness in the labor market with further accommodation.
In addition to a weaker jobs market, the case for lower rates is dependent on tariff-driven inflation being a temporary one-time phenomenon and data to resume a move lower towards 2%. The BLS will publish annual CPI inflation as of November on Thursday 12/18 and PCE inflation data on Friday 1/2/2026.
This Week’s Economic Data – See Economic Calendar attached
The data highlights this week will be the November US employment report tomorrow Tuesday 12/16 (delayed, originally scheduled for 12/5), weekly jobless claims and CPI on Thursday 12/18 and the U. of Mich. Sentiment and inflation expectations on Friday 12/19.
About Serafino:
Serafino is Greystone’s director of trading in Agency CMBS (Fannie Mae DUS) and GNMA/FHA securities, interest rate caps and also directs Greystone’s proprietary portfolio investments in these types of securities, FHA-insured mortgages, and tax-exempt municipal bonds. Mr. Tobia previously traded bonds and muni derivatives at Lehman Brothers and at other NY banks/securities firms. Serafino holds a B.A. in Economics from Brandeis University and an M.B.A. in Finance from NYU’s Stern School of Business.
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.
1Geopolitical Shift - Recall during the last two weeks of October 10-year yields pushed down to 3.93% spurred by trade tensions with China after President Trump moved tariffs on Chinese imports to 100%. Subsequently, yields moved back above 4% after the US-China trade tensions were scaled back.