Duration Dashboard

The Jackson Hole 2025 symposium fundamentally altered fixed income dynamics as Federal Reserve Chair Powell delivered his most dovish communication since the pandemic era. The 2-year Treasury yield fell 8 basis points to 3.62%, pricing in near-certainty of a September rate cut, while the 30-year bond's rise to 4.93% (96th percentile of its 5-year range) signaled deep skepticism about the Fed's ability to control long-term inflation expectations. The week's 30-year TIPS auction drew exceptional demand at a 2.65% real yield—the highest since 2001—underscoring institutional appetite for inflation protection despite the dovish rhetoric.

Credit Pulse

Credit markets celebrated the Jackson Hole pivot with high yield spreads compressing 10 basis points to 252bp—reaching the 7th percentile of their 5-year range and approaching levels not seen since the late 1990s. The compression occurred despite seasonally light primary issuance ($15-20 billion weekly versus typical $30-40 billion), creating powerful technical dynamics as reinvestment flows chased limited supply. Investment grade spreads widened marginally by 3 basis points to 74bp but remained near historic tights at the 19th percentile. The VIX's modest rise to 15.36 (still only 23rd percentile) suggests equity markets remain remarkably sanguine about the complex crosscurrents facing monetary policy.

The week's defining characteristic was the stark contrast between different segments of the fixed income complex. While credit investors pushed spreads to generational lows in celebration of Fed accommodation, duration investors sent the 30-year bond to extreme levels rarely seen outside of crisis periods. This bifurcation—risk assets priced for perfection while safe assets flash caution—creates an unstable equilibrium that history suggests resolves violently in one direction. The Jackson Hole symposium, rather than providing clarity, appears to have amplified these contradictions.

Federal Reserve Policy Outlook – September Cut Now Consensus

The September 16-17 FOMC meeting has transformed from a likely "hawkish hold" to near-certain easing following Jackson Hole communications. Governor Waller's estimate that the neutral rate sits 125-150 basis points below current levels suggests a prolonged easing cycle ahead, though markets remain skeptical given persistent inflation pressures. The Committee faces the delicate task of easing financial conditions without reigniting the very inflation it spent two years combating. The updated Summary of Economic Projections will likely show significant downward revisions to 2025 growth and employment forecasts, with inflation projections potentially revised higher—the textbook definition of stagflation that monetary policy cannot easily address.

Behind the dovish rhetoric lies a more complex reality: the Fed may be easing not from strength but from necessity, as fiscal dominance increasingly constrains monetary policy independence. With federal debt approaching $35 trillion and interest costs consuming nearly 20% of tax revenues, the Fed faces implicit pressure to suppress yields regardless of inflation dynamics. The 30-year bond's rise to the 96th percentile despite imminent easing suggests markets recognize this uncomfortable truth. Powell's press conference will need to thread the needle between acknowledging economic softening and maintaining inflation-fighting credibility.

Week Ahead: Data Deluge Tests Fed's Pivot

• ISM Manufacturing (September 3): August data takes on heightened importance as first post-Jackson Hole indicator. Consensus expects continued contraction below 50, validating Fed's growth concerns.
• Non-Farm Payrolls (September 6): August employment report becomes critical test of Powell's labor market warnings. Consensus sees 165,000 jobs added with unemployment holding at 4.3%.
• ISM Services (September 4): Services sector resilience key to soft landing narrative. Any reading below 50 would dramatically accelerate easing expectations.
• JOLTS Job Openings (September 3): July data will show whether labor market loosening continues. Decline below 8 million openings would confirm Fed's pivot timing.
• Treasury Auctions: $183 billion in new issuance including 3-year, 10-year and 30-year auctions will test demand at current yield levels post-Jackson Hole.

Credit Markets Navigate Between Euphoria and Reality

The high yield market's compression to 252 basis points (7th percentile) reflects powerful technical dynamics overwhelming fundamental concerns. August's seasonally light primary calendar—just $15-20 billion weekly versus $35-40 billion typical—created acute scarcity as an estimated $1.6 trillion in annual coupon payments sought reinvestment opportunities. ETF flows surged following Powell's speech, with HYG and JNK collectively gathering over $2 billion in the week's final three days. Yet beneath the surface, dispersion increased markedly: BB-rated credits tightened 15 basis points while CCC-rated bonds in retail and commercial real estate widened by 20-30 basis points, suggesting discriminating credit selection despite headline compression.

Investment grade's modest 3 basis point widening to 74bp masks significant sector rotation as utilities and financials outperformed on infrastructure spending and bank earnings momentum while technology and consumer discretionary lagged on growth concerns. The new issue calendar remained subdued with just $18 billion pricing, well below the $40 billion weekly average, creating a powerful technical tailwind. Secondary trading volumes on TRACE averaged $61 billion daily, up 18% year-over-year, with block trades increasingly difficult to execute without significant market impact—a warning sign of deteriorating liquidity despite tight spreads.