Duration & Credit Pulse
Executive Summary
Bottom Line: The January 2026 CPI January 2026 report delivered a positive surprise — headline inflation eased to 2.4% year-over-year against a 2.5% consensus — catalyzing a broad Treasury rally that pushed the 10-year yield down 16 basis points to 4.05%, its lowest level since November 2025. The move was reinforced by a stronger-than-expected January payrolls print (+130,000 vs. approximately +65,000 consensus), which nonetheless carried a meaningful caveat: the BLS benchmark revision removed 898,000 jobs from 2025, halving the prior average monthly gain. Credit markets diverged beneath calm index-level readings, with HY spreads widening 20 basis points as technology-sector credits came under pressure from AI disruption concerns, even as Alphabet's record $32 billion global bond offering demonstrated sustained institutional appetite for high-quality IG paper.
Duration Dashboard
| Maturity | February 6, 2026 | February 13, 2026 | Weekly Δ | 5-Year Percentile |
|---|---|---|---|---|
| 2‑Year | 3.50% | 3.41% | −9 bp | 31st %ile (middle range) |
| 5‑Year | 3.76% | 3.61% | −15 bp | 38th %ile (middle range) |
| 10‑Year | 4.21% | 4.05% | −16 bp | 56th %ile (middle range) |
| 30‑Year | 4.85% | 4.70% | −16 bp | 78th %ile (elevated) |
CPI January 2026 Drives Parallel Rate Decline with Modest Bull Flattening
Curve Analysis: Treasury yields moved broadly lower in near-parallel fashion as the January CPI print confirmed continued disinflation. The front end rallied a more modest 9 basis points (2-year) relative to the 15–16 basis point decline across the 5-, 10-, and 30-year tenors, compressing the 2s10s spread from 71 basis points to 64 basis points — a moderate bull-flattening pattern. The 30-year yield at 4.70% sits at the 78th percentile of its 5-year history, reflecting still-elevated term premium relative to a 10-year now in middle-range territory at the 56th percentile. This spread between long-end historical percentiles and mid-curve percentiles is a useful signal: markets are pricing in near-term Fed flexibility while maintaining caution about the long-run fiscal and inflationary backdrop.
The week's Treasury rally reflected a constructive alignment of softer inflation data, sustained institutional demand at refunding auctions, and equity market risk-off flows that redirected capital toward fixed income. The 10-year yield closed at 4.049%, its lowest level since November 2025, while the 30-year mortgage rate fell to approximately 6.09% — its lowest reading since September 2022. Notably, intraweek dynamics were more complex than end-of-week levels suggest: the 10-year initially moved higher on Wednesday's stronger-than-anticipated payrolls report before reversing as broader risk sentiment softened and Thursday's existing home sales data reinforced growth concerns. The $125 billion Treasury refunding (3-year, 10-year, 30-year notes) was well absorbed, with the 30-year bond auction drawing its strongest bid-to-cover ratio in eight years. This week's bull-flattening dynamic contrasts with the bear-steepening pressure observed in our week ending February 8 report, when labor market resilience pushed long-end yields higher.
Credit Pulse
| Metric | February 6, 2026 | February 13, 2026 | Weekly Δ | 5-Year Percentile |
|---|---|---|---|---|
| HY OAS | 237 bp | 257 bp | +20 bp | 15th %ile (historically tight) |
| IG OAS | 71 bp | 75 bp | +4 bp | 26th %ile (middle range) |
| VIX Index | 17.76 | 20.60 | +2.84 | 70th %ile (middle range) |
Investment-grade credit performed well on a total return basis — the 4-basis-point widening in IG OAS was more than offset by the Treasury rally, producing positive total returns for high-quality corporate bond holders. IG spreads at 75 basis points remain near the lower portion of their historical range (26th percentile), reflecting generally solid corporate fundamentals and substantial institutional demand for IG paper. High-yield spreads widened a more meaningful 20 basis points to 257 basis points, though this level still resides at the 15th percentile of the five-year history — indicating spreads remain historically compressed in absolute terms even after the week's move. The VIX closing at 20.60 reflects a modest uptick in equity market uncertainty but remains within the middle range of its historical distribution, not signaling acute stress.
US Macroeconomic Assessment — Disinflation Resumes, But Data Fog Persists
January CPI January 2026 print delivers constructive surprise: The Bureau of Labor Statistics reported that headline consumer prices rose 0.2% month-over-month and 2.4% year-over-year in January — both below consensus estimates of 0.3% and 2.5%, respectively. Core CPI (excluding food and energy) came in at 0.3% month-over-month and 2.5% year-over-year, matching expectations. Shelter costs, which had been a persistent source of stickiness, decelerated to 0.2% month-over-month from 0.4% in December. Energy prices declined 1.5%, with gasoline down 3.2%. Airline fares were a notable outlier, rising 6.5% month-over-month, likely reflecting demand normalization. Critically, core goods remained flat on a monthly basis, suggesting that tariff-related price pressures have not yet worked their way into the consumer price data in a measurable way.
Payrolls data beats, benchmark revisions paint a more muted picture: The delayed January employment situation report (released Wednesday, February 11) showed nonfarm payrolls increased by 130,000 — well above the range of consensus estimates (approximately 55,000–75,000). The unemployment rate declined to 4.3% from 4.4%, and average hourly earnings rose 0.4% month-over-month (3.7% year-over-year). However, the BLS annual benchmark revision, released alongside the January data, reduced 2025 cumulative payroll gains by 898,000 jobs, lowering the average monthly gain from 49,000 to approximately 15,000. This revision substantially changes the characterization of 2025 labor market conditions. January's stronger reading reflects health care (+82,000), social assistance (+42,000), and construction (+33,000), while federal government employment fell by 34,000, consistent with workforce reduction initiatives.
Remaining data releases confirm a mixed activity picture: Weekly initial jobless claims for the week ended February 8 came in at 227,000, slightly above the 222,000 consensus, while continuing claims rose to 1.862 million. The NFIB Small Business Optimism Index for January edged down to 99.3 (versus 99.8 expected), with the uncertainty component rising to 91 from 84 — reflecting the still-unsettled trade policy environment. Existing home sales declined 8.4% in January, the largest monthly decline since 2022, as affordability constraints from mortgage rates above 6% weighed on buyer activity. December retail sales (released after a delay) came in flat versus a consensus of +0.4%. The January PPI report was postponed to late February. Taken together, these releases confirm a labor market that is cooling gradually from 2025 levels but still generating positive job creation, alongside consumers who are moderating spending as high debt-service costs persist.
Federal Reserve Policy Outlook — CPI January 2026 Supports June, But Logan Holds the Line
Dallas Fed President Lorie Logan — a 2026 FOMC voting member — delivered the week's most substantive policy communication at an industry forum on February 10. She characterized the 2025 rate cuts as having taken on additional inflation risk and stated that she is not yet fully confident that inflation is returning sustainably to 2%. Logan noted that the real fed funds rate sits within the range of estimates for neutral, implying that additional easing is not necessarily warranted. Her remarks were consistent with a committee that is comfortable holding at current levels while allowing incoming data to guide the pace of any future adjustments.
Following the January CPI print, futures markets priced an approximate 83% probability of a 25-basis-point cut at the June 2026 FOMC meeting, with the full year implying roughly two cuts. The March meeting remains a near-certainty hold. This repricing reflects a market that interpreted the CPI miss as meaningful confirmation of disinflation, even as Logan's remarks reinforced that the committee's reaction function requires more sustained evidence. The FOMC minutes from the January 27–28 meeting are scheduled for release on February 18 and will be closely monitored for the degree of internal debate regarding the inflation risk balance, particularly in light of pending tariff-related price pressures that have not yet appeared in the CPI data. As covered in our February 1 edition, the Warsh nomination adds an additional layer of policy uncertainty to the medium-term monetary outlook.
Primary Market Spotlight — Record IG Issuance Anchors Constructive Technicals
Primary market activity during the week was notably robust, providing an important technical backdrop to the spread dynamics described above. Alphabet priced a $32 billion multi-currency offering — the largest corporate bond sale on record — encompassing $20 billion across seven USD tranches (3-year through 40-year maturities), £5.5 billion in sterling (the largest corporate sterling transaction ever, including a £1 billion 100-year bond), and CHF 3.1 billion in Swiss francs. The transaction attracted over $100 billion in aggregate orders, demonstrating the depth of institutional demand for high-quality credit across global markets. Pricing ranged from approximately T+27 basis points on the 3-year tranche to T+95 basis points on the 40-year, suggesting investors are willing to extend duration at spreads consistent with current market conditions.
Walt Disney Company returned to the investment-grade primary market for the first time since 2020, pricing a $4 billion four-part transaction. Spread tightening from initial price guidance of approximately T+85 basis points to a final 10-year coupon of T+58 basis points reflected strong demand and efficient price discovery. In the high-yield market, Tract Capital priced $3.8 billion in bonds for an Nvidia-leased data center project — an unbuilt facility with no operating history — at 5.875%, drawing approximately $14 billion in orders. This deal illustrates the continued investor appetite for AI-infrastructure exposure even in the lower-rated credit segment, though the underlying credit metrics warrant careful due diligence given the project's development stage. Year-to-date investment-grade gross issuance reached approximately $346 billion, running more than 10% above the prior year's record pace at this point in the calendar.
Week Ahead — February 17–21, 2026
- Presidents' Day (February 16 — Markets Closed): US bond and equity markets are closed Monday. Reduced liquidity upon Tuesday's reopening may amplify price movements around any weekend headlines, particularly on the trade policy and geopolitical fronts.
- FOMC January Meeting Minutes (February 18): The minutes from the January 27–28 meeting are the week's primary fixed income event. Markets will parse the discussion for the breadth of concern about inflation persistence and whether any participants raised the possibility of rate increases — which would represent a meaningful shift in the committee's stated risk balance.
- Housing Starts and Building Permits (February 19): Following January's 8.4% decline in existing home sales, housing starts and permits data will help clarify whether the weakness reflects temporary weather or affordability factors versus a more durable pullback in residential construction activity.
- Initial Jobless Claims (February 19): Weekly claims data will be monitored for any acceleration in federal government layoffs following the workforce reduction initiatives that reduced federal employment by 34,000 in January.
- Supreme Court Tariff Case (Timing Uncertain): The Court's consideration of the challenge to IEEPA-based tariff authority represents a significant tail risk for both trade policy and Treasury supply. A ruling could have immediate implications for corporate supply chains and fiscal projections.
US Economic Positioning and Global Context
The week's data reinforced a picture of gradual US disinflation running somewhat ahead of other developed economies, though the statistical uncertainties introduced by the government shutdown complicate direct comparisons. The Federal Reserve's current posture — on hold with a modest easing bias — contrasts with a Bank of Japan that signaled its intention to continue gradual rate increases toward 1.0%, and a European Central Bank whose cutting cycle appears to be approaching completion. Narrowing US-Japan yield differentials, with the 10-year JGB approaching 2.12%, are relevant to the structural demand picture for Treasuries: if Japanese institutional investors reduce their US duration exposure as domestic yields become more competitive, the offset would need to come from domestic or other foreign buyers.
The US dollar index (DXY) declined approximately 0.7% over the week to the 96–97 range, consistent with the softer inflation data and equity market risk-off that modestly reduced the interest rate differential supporting the dollar. Crude oil remained subdued in the low-$60s during the reporting period, though geopolitical tensions involving Iran — including military drills in the Strait of Hormuz and escalating diplomatic pressure — represent a meaningful upside risk to energy prices that, if realized, would complicate the disinflation narrative. Gold traded near $5,060–5,070, supported by a combination of central bank purchasing (the People's Bank of China reported its 15th consecutive month of gold acquisitions) and geopolitical risk premium. An escalation in Middle Eastern tensions that pushed energy prices materially higher would present a challenge to the current benign rate trajectory that markets are pricing. The 30-year yield at 4.70% remains well below the 4.92% peak reached just three weeks prior, as documented in our January 25 report, underscoring how quickly long-end rates can reprice when risk sentiment deteriorates.
Key Articles of the Week
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Consumer Price Index Summary — January 2026 ResultsU.S. Bureau of Labor StatisticsFebruary 13, 2026Read Article
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CPI Inflation Report January 2026: Inflation Eases to 2.4%CNBCFebruary 13, 2026Read Article
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Employment Situation Summary — January 2026 ResultsU.S. Bureau of Labor StatisticsFebruary 11, 2026Read Article
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Jobs Report January 2026: Payrolls Rise 130,000CNBCFebruary 11, 2026Read Article
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Outlook for the Economy and Monetary PolicyFederal Reserve Bank of Dallas (President Lorie Logan)February 10, 2026Read Article
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Alphabet Sells Almost $32 Billion Bonds as Tech Races to Fund AIBloombergFebruary 10, 2026Read Article
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Disney Launches First Investment-Grade Bond Sale Since 2020BloombergFebruary 10, 2026Read Article
-
Treasury Yields Snapshot: February 13, 2026Advisor PerspectivesFebruary 13, 2026Read Article
Frequently Asked Questions
What did the January 2026 CPI report show, and why did it matter for Treasury yields?
January 2026 CPI rose 2.4% year-over-year — below the 2.5% consensus — and 0.2% month-over-month versus a 0.3% expectation. Shelter costs decelerated and core goods were flat. The downside surprise shifted market pricing toward a June Federal Reserve rate cut and catalyzed a 16-basis-point decline in 10-year Treasury yields to 4.05%, the lowest level since November 2025.
Why are January 2026 CPI readings subject to a data caveat?
The 43-day partial government shutdown (October–November 2025) forced the BLS to use carry-forward methodology for missing October data, introducing a downward statistical bias estimated at 20–30 basis points on reported CPI readings through approximately April 2026. Investors should interpret January's 2.4% figure in this context when assessing whether the disinflation trend has genuinely re-accelerated.
How did credit markets respond during the week ending February 15, 2026?
Investment-grade spreads widened a modest 4 basis points to 75 basis points, but total returns were positive as the Treasury rally more than offset the spread move. High-yield spreads widened 20 basis points to 257 basis points, driven primarily by technology-sector credits under pressure from AI disruption themes. Both IG and HY spreads remain below their historical median in absolute terms, at the 26th and 15th percentiles of their five-year histories, respectively.
What is the Federal Reserve's policy outlook following the January 2026 inflation data?
The Fed remains on hold with markets pricing an approximate 83% probability of a first 25-basis-point cut in June 2026. Dallas Fed President Logan's remarks on February 10 reinforced a patient approach, noting that slowing inflation alone is insufficient to justify additional rate reductions and that current policy is appropriately positioned. The FOMC minutes from the January meeting, due February 18, will provide additional detail on the committee's risk balance assessment.
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