Duration Dashboard

The Treasury market during April 13-20 represented a critical stabilization phase following one of the most dramatic selloffs in recent memory. The 10-year yield had spiked from approximately 4.17% on April 2 to over 4.5% by April 9-10, marking the biggest weekly rise in over 20 years before consolidating near 4.48% by week's end. The below-consensus inflation prints provided tactical relief, with yields declining immediately after the CPI release on April 15, though the rally proved short-lived as dealers remained reluctant to add duration risk amid continued fund outflows and policy uncertainty.

Credit Pulse

Credit markets began their recovery journey from the worst levels since November 2023, with investment grade spreads tightening 6 basis points to 112bp while high yield compressed 20bp to 425bp. Despite the improvement, spreads remained at elevated percentiles (68th for IG, 73rd for HY), well above the extreme tights of late March when high yield traded at just 280bp. The primary market showed tentative signs of reopening with select issuers testing demand, though new issue concessions averaged 3 basis points for BBB-rated credits versus near zero pre-tariff, indicating persistent investor caution.

Federal Reserve Policy Outlook

The Federal Reserve found itself navigating an increasingly narrow path between inflation risks and growth concerns, with market pricing during the week reflecting deep uncertainty about the policy trajectory. CME FedWatch data indicated approximately 75% probability of at least two rate cuts by December 2025, with the first cut potentially coming at the June meeting. However, the benign inflation data was offset by concerns that tariff implementation could reignite price pressures, leaving the Fed in a holding pattern.

Behind the scenes, Fed officials grappled with the unprecedented challenge of setting policy amid radical trade uncertainty. The dramatic decline in wholesale prices suggested deflationary forces from demand destruction might offset tariff-induced inflation, but the timing and magnitude of these competing forces remained highly uncertain. Federal Reserve communications during the week, including speeches from regional Fed presidents, emphasized data dependence and flexibility, though markets interpreted this as confusion rather than prudence. The breakdown in traditional economic relationships—particularly the Phillips Curve dynamics between employment and inflation—further complicated the Fed's reaction function.

Week Ahead: Data Tests Stabilization Narrative

• Q1 GDP (April 25): First quarter growth data takes on heightened importance given signs of economic deceleration. Consensus expects 2.5% annualized growth, but whisper numbers trend lower given weak March data.
• PCE Inflation (April 26): March core PCE, the Fed's preferred inflation gauge, expected at 0.3% monthly. Any upside surprise could reignite rate fears given tariff overhang.
• Durable Goods (April 24): March orders data will reveal whether business investment freeze persisted through quarter-end. Aircraft orders likely to distort headline; focus on core capital goods.
• Consumer Confidence (April 23): Conference Board index expected to show continued deterioration as tariff fears weigh on sentiment. Forward expectations component key for spending outlook.
• Treasury Refunding Announcement (April 29): Quarterly refunding details amid massive deficits and foreign buyer concerns. Any increase in auction sizes could pressure the fragile stabilization.

US Economic Positioning and Global Context

The United States entered uncharted territory as traditional economic relationships broke down under the weight of unprecedented policy uncertainty. The dollar's 5% decline from April 2-9 despite risk-off conditions signaled growing international concern about American fiscal sustainability and policy coherence. Gold's surge past $3,500/oz reflected a broader loss of confidence in fiat currencies, with central banks accelerating purchases as geopolitical tensions escalated. The combination of massive fiscal deficits approaching 7% of GDP, trade war risks, and political volatility created conditions ripe for a potential dollar crisis.

Global central banks diverge as US policy creates chaos: The European Central Bank's March rate cut to 2.50% and the Bank of Japan's January hike to 0.50% exemplified the policy divergence created by American trade disruption. Foreign central banks found themselves forced to offset US-induced volatility through monetary accommodation, potentially sowing the seeds of future financial instability. For fixed income investors, the April 13-20 stabilization offered breathing room but no resolution to fundamental challenges. The persistence of extreme yield percentiles despite benign inflation data suggested markets had permanently repriced term premium to reflect policy uncertainty. Credit spreads' recovery from panic levels provided tactical opportunities, but the $46 billion fund exodus warned that investor confidence remained deeply shaken. In this new regime, capital preservation trumped yield maximization as the guiding principle for prudent portfolio management.