Duration Dashboard

Treasury yields declined across the curve as conflicting Federal Reserve signals created volatility that ultimately resolved in favor of expectations for continued policy easing. The 10-year yield fell 8 basis points to 4.07%, while the front end declined more substantially with 2-year and 5-year yields dropping 10-11 basis points to 3.51% and 3.62% respectively. The moves developed late Friday following NY Fed President John Williams' November 21 speech stating he sees "room for a further adjustment in the near term" to move policy closer to neutral—contrasting with cautious messaging from Atlanta Fed President Raphael Bostic and Boston Fed President Susan Collins earlier in the week who expressed preference for pausing rate cuts given persistent inflation concerns.

Credit Pulse

Credit spreads widened modestly during the week despite the Treasury rally, with high yield expanding 9 basis points to 284 bps and investment grade adding 2 bps to 80 bps. The divergence between rallying Treasuries and widening credit spreads reflected equity market stress, as the Nasdaq Composite fell 3.0% for the week—its worst performance since April's tariff-induced selloff—amid concerns about AI infrastructure investment sustainability. VIX volatility surged 3.60 points to 23.43, reaching the 82nd percentile of its 5-year range, yet credit spreads remained in the bottom third of historical ranges at the 29th and 34th percentiles respectively, suggesting technical support from foreign buying and fund flows continues to dominate fundamental concerns.

Economic Data Blackout Creates Policy Uncertainty

The 43-day government shutdown's most consequential market impact was the complete cancellation of October CPI data, originally scheduled for November 7 but subsequently scrapped when the Bureau of Labor Statistics determined retroactive survey collection was impossible. This leaves the Federal Reserve entering its December meeting without an October inflation data point, relying on September's 3.0% headline and core CPI readings. The November CPI release was rescheduled to December 18—after the December 17-18 FOMC meeting concludes—creating information asymmetry unusual in modern central banking. Producer Price Index reports for September and October similarly remained unavailable as of week's end.

The limited data releases that occurred provided mixed signals. Initial jobless claims for the week ending November 15 came in at 220,000 (down 8,000 from prior week), suggesting labor market stability, while continuing claims rose to 1.974 million (up 28,000), indicating gradual softening in reemployment dynamics. The Philadelphia Fed Manufacturing Index for November registered -1.7, improved from October's -12.8 but still in contraction territory and below consensus expectations. Consumer sentiment showed weakness—the University of Michigan final November reading of 51.0 represented the second-lowest measure in the survey's history, with the current economic conditions sub-index declining to 51.1, the lowest reading recorded.

S&P Global's flash November PMI data, released November 21, showed the Composite PMI rising to 54.8 from 54.6, indicating annualized GDP growth of approximately 2.5% for Q4 2025. However, Chief Business Economist Chris Williamson highlighted that input costs rose at one of the fastest rates in the past three years, with "tariffs cited as the predominant reason for cost increases." This inflation pressure metric conflicts with Fed rate cut expectations, explaining the internal committee division that October minutes revealed. The simultaneous presence of solid activity data and surging input costs creates the classic stagflation-lite environment that paralyzes monetary policy formulation.

Equity Market Volatility and Credit Market Resilience

Equity markets declined during the week, with the Nasdaq Composite falling 3.0%—its weakest weekly performance since April's tariff-related selloff—despite Nvidia reporting strong earnings Wednesday evening. Thursday saw notable intraday action with the Dow reversing 1,100 points from highs to lows, the largest such movement since April, while Nvidia stock closed down 3% after gaining as much as 5% intraday. The reassessment centered on whether hyperscaler AI infrastructure spending justifies current valuations given mounting debt issuance and uncertain monetization timelines. VIX volatility increased to peak at 26.42 on Thursday before retreating to 23.43 by Friday's close.

Credit markets demonstrated relative resilience despite equity weakness, with investment grade and high yield spreads widening modestly rather than experiencing the sharp repricing that volatility levels historically presage. The persistence of tight credit spreads—IG at 80 bps (34th percentile) and HY at 284 bps (29th percentile)—despite VIX at the 82nd percentile reflects powerful technical support from foreign demand and fund flows. Q3 2025 saw $193 billion inflow to long-term taxable bond funds, though this trend reversed with $17.77 billion in outflows during the week ending November 5, potentially signaling shifting dynamics.

The disconnect between elevated equity volatility and compressed credit spreads creates positioning challenges for institutional portfolios. Historical analysis suggests this configuration typically resolves through spread widening rather than volatility compression, as credit markets eventually price the economic uncertainty that equity volatility signals. The question facing fixed income managers is whether current technicals—foreign buying, elevated all-in yields, and solid corporate fundamentals—can sustain tight spreads through year-end despite macro uncertainty, or whether equity market weakness represents an early warning that credit markets have yet to fully incorporate.

Geopolitical Developments and Trade Policy

The Trump administration's November 10 trade deal with China addressed certain supply chain concerns, particularly around rare earth materials important for defense and technology applications. China committed to suspend export controls on gallium, germanium, antimony, and graphite announced in October, while agreeing to purchase 12 million metric tons of US soybeans during November-December 2025, scaling to 25 million metric tons annually from 2026-2028. In exchange, the US reduced fentanyl-related tariffs by 10 percentage points and maintained the 10% reciprocal tariff suspension through November 10, 2026.

The deal's fiscal implications merit attention—the administration reduced projected tariff revenue by $1 trillion, from $4 trillion to $3 trillion, affecting calculations around promised $2,000 "tariff dividend" checks to Americans. Current weighted average applied tariff rates reached 17.6%, with effective rates at 12.5%—the highest since 1941—yet 2025 tariff revenue likely totals only $225 billion according to Penn Wharton Budget Model. This revenue shortfall versus political commitments creates potential fiscal considerations that could influence Treasury supply and yields in 2026, though near-term market impact remained muted.