Treasury Duration Dashboard

Treasury markets closed out 2025 with a holiday week characterized by thin liquidity and modest bear steepening. The 10-year yield rose 6 basis points to 4.19% on January 2—the first trading day of 2026—as markets digested the December FOMC minutes released on December 30. The front end remained better anchored, with 2-year yields essentially unchanged at 3.47%, reflecting confidence that the Fed will hold rates steady through at least March. The 30-year yield's position at the 93rd percentile of its 5-year range underscores persistent concerns about long-duration exposure amid elevated fiscal deficits and tariff-related inflation risks.

Credit Pulse

Credit spreads ended 2025 at historically compressed levels despite the challenging backdrop of 15-year-high bankruptcy filings and elevated tariff uncertainty. High yield OAS tightened 6 basis points to 238bp—sitting at just the 2nd percentile of its 5-year range—while investment grade spreads held steady at 73bp. The disconnect between fundamentals and spreads reflects robust technical support from yield-seeking investors and expectations of continued economic resilience. However, with corporate bankruptcy filings reaching 717 through November 2025 (the highest since 2010), the repricing risk remains asymmetric.

Federal Reserve Policy Outlook

The Federal Reserve enters 2026 with rates at 3.50-3.75% following three cuts totaling 100 basis points in 2024-2025. The December FOMC minutes revealed a committee deeply divided on the appropriate path forward, with the 9-3 vote representing the largest dissent since 2019. Cleveland Fed President Beth Hammack, who dissented in favor of holding rates steady, gains a voting seat in 2026 and has publicly advocated for a "wait and watch" approach given persistent inflation above the 2% target.

Market pricing has adjusted significantly since the December meeting. The CME FedWatch tool shows an 85% probability of no change at the January 28 meeting, with March odds tilted toward another hold. The first 2026 cut is not fully priced until June, and markets now expect only two 25bp cuts for the full year—a notable hawkish repricing from September 2024 when six cuts were anticipated. The updated Summary of Economic Projections in December raised the median 2025 core PCE forecast to 2.8% while lowering the projected 2026 rate path, acknowledging both stickier inflation and resilient growth.

Venezuela Operation and Oil Market Implications

U.S. military forces captured Venezuelan President Nicolás Maduro in an overnight operation on January 3, codenamed "Operation Absolute Resolve." The strike began at approximately 2:00 AM local time, with Delta Force operators extracting Maduro and his wife from their residence at Fort Tiuna military complex in Caracas. The couple was transported via helicopter to the USS Iwo Jima and are en route to New York to face narcoterrorism charges under a superseded 2020 indictment. President Trump announced the U.S. would "run the country" until a transition can be arranged, though Venezuelan Vice President Delcy Rodríguez has not acknowledged any transfer of power.

Venezuela holds 303 billion barrels of proven crude reserves—approximately one-fifth of global supply—though production has declined to roughly 800,000-900,000 barrels per day under sanctions and infrastructure decay, down from over 3 million bpd in the early 2000s. State oil company PDVSA estimates $58 billion would be required to restore infrastructure to peak production levels. Trump stated U.S. oil companies would "invest billions" to rehabilitate Venezuelan oil assets, though analysts note meaningful production increases would require years of capital deployment and political stability.

OPEC+ Confirms Q1 Output Pause

OPEC+ confirmed on Sunday that it will maintain its production pause through the first quarter of 2026, as the eight key producers—Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria, and Oman—met virtually to review market conditions. The group reiterated its November 2 decision to pause planned production increases through March, citing seasonal demand patterns. Delegates indicated the Venezuela situation did not alter near-term policy, noting it remains "too early to assess" the geopolitical impact.

The meeting occurred against a backdrop of rare public friction between Saudi Arabia and the UAE over Yemen, where Riyadh conducted airstrikes on a UAE-linked weapons shipment earlier in the week. Despite the tensions, OPEC+ maintained cohesion on output policy. Oil prices remain under pressure with Brent near $61/barrel—down approximately 20% in 2025—as the IEA projects a potential surplus exceeding 3.8 million barrels per day in 2026. OPEC+ will next meet on February 1 to reassess market conditions, with the full ministerial meeting scheduled for June 7.

Week Ahead: December Payrolls and ISM Data

• Oil Markets (Sunday Open): Crude futures reopen Sunday at 6:00 PM ET with traders pricing Venezuela developments and OPEC+ confirmation. Analysts expect modest upside ($1-2) with elevated volatility as markets assess geopolitical risk premiums.
• ISM Services PMI (January 7): December services data will provide the first comprehensive read on holiday-season economic activity. Consensus expects a modest decline from November's 52.1, though any reading above 50 would confirm continued services expansion.
• JOLTS Job Openings (January 7): November data will show whether the labor market's gradual cooling continued through year-end. Markets will focus on the quits rate as a leading indicator of worker confidence.
• December Employment Report (January 10): The first major data release of 2026 carries significant weight for Fed expectations. Consensus is forming around 150,000 new jobs versus November's 227,000, with the unemployment rate expected steady at 4.2%.
• CPI Inflation (January 15): December CPI will be critical for gauging whether the disinflation trend resumed after November's 0.3% core reading. Any upside surprise could cement hawkish Fed expectations through Q1.
• Treasury Auctions: The Treasury will announce January refunding details, with markets attentive to auction sizes amid continued fiscal deficit concerns and elevated long-end yields.

US Economic Positioning and Global Context

The United States enters 2026 with a unique combination of economic resilience and heightened geopolitical assertiveness. Q3 2025 GDP growth of 4.3% demonstrated the economy's continued strength, yet tariff rates have reached approximately 15.8%—the highest since 1943—generating $215 billion in annual duty revenue while creating inflation pressures the Fed cannot easily offset. The Venezuela operation marks a significant escalation in U.S. interventionism, with implications for regional stability, energy markets, and relations with China and Russia—both of which have condemned the action.

For fixed income investors, the weekend developments add another layer of uncertainty to an already complex landscape. The bear steepening pattern and elevated long-end percentiles suggest maintaining a neutral duration stance, while credit's extreme tightness warrants continued up-in-quality positioning. Oil price volatility could influence inflation expectations and Fed policy, though the immediate market consensus points to contained impact given Venezuela's minimal current production. The larger question is whether U.S. foreign policy assertiveness—from tariffs to military intervention—represents a regime shift requiring structural repricing of risk premiums across asset classes.