Duration Dashboard

The uniformity of this week's Treasury yield increases—ranging from 4.5 to 5.1 basis points across the 2-year, 5-year, 10-year, and 30-year maturities—suggested broad repricing of term premium rather than changing Fed policy expectations, as markets incorporated the reality that October data would never be collected during the shutdown. The 10-year benchmark settling at 4.15% marked its 66th percentile positioning, while the 30-year's advance to 4.75% pushed it into elevated territory at the 87th percentile—a spread between percentile rankings that typically signals flattening bias but was absent this week due to the synchronized move.

Credit Pulse

Credit spreads tightened modestly as investment grade narrowed 1 basis point to 78bp and high yield compressed 5bp to 275bp, maintaining positions near the tightest levels in 15 years despite rising Treasury yields and Fed policy uncertainty. This performance reflected technical support—particularly the record $15.18 billion of bond fund inflows for the week ended November 5—that offset fundamental concerns about valuations at historically tight levels. The VIX's modest rise to 19.83 (61st percentile) indicated contained equity market anxiety, with credit investors viewing the government shutdown resolution and gradual economic data resumption as removing tail risks rather than creating new concerns.

Federal Reserve Policy Outlook – Fed December Rate Cut 2025 in Question

The Fed December rate cut 2025 outlook shifted notably during the week of November 9-16, with market-implied probability declining from 95% at the start of November to approximately 40-50% by week's end as Federal Reserve officials delivered divergent messages about appropriate policy. The significant division within the FOMC—featuring two officials disclosing they opposed October's rate reduction and one Governor explicitly calling for a December cut—ended the consensus that Chair Powell had maintained for years and left markets uncertain about the Committee's next move.

The hawkish hold camp gained momentum mid-week: Atlanta Fed President Raphael Bostic delivered the clearest articulation of the pause case on November 12 at the Atlanta Economics Club, arguing that "the clearer and urgent risk is still price stability" given inflation had exceeded 2% for nearly five years. He characterized policy as "marginally restrictive" and stated he would favor "keeping the funds rate steady until we see clear evidence that inflation is again moving meaningfully toward its 2% target." His Atlanta Fed's CFO Survey revealed companies planning to raise prices well into 2026, with only 40% of cost growth attributed to tariffs—evidence that inflationary pressures extended beyond trade policy. Kansas City Fed President Jeffrey Schmid reinforced this stance on November 14, revealing he dissented at the October 28-29 FOMC meeting, preferring to hold rates steady. He emphasized that "inflation remains too high, the economy shows continued momentum, and the labor market—though cooling—remains largely in balance."

Governor Waller presented a contrasting view: Fed Governor Christopher Waller offered a different perspective on November 17 in London, explicitly supporting a 25 basis point Fed December rate cut 2025 at the upcoming FOMC meeting. His speech titled "The Case for Continuing Rate Cuts" argued that "the labor market is still weak and near stall speed," citing the ADP estimate of only 6,500 jobs created per month in September-October. Waller expressed particular concern about how "restrictive monetary policy is weighing on the economy, especially about how it is affecting lower- and middle-income consumers," pointing to housing affordability at historic lows and continuing unemployment claims rising above 2023-2024 levels. He characterized a December cut as "risk management" providing "additional insurance against an acceleration in the weakening of the labor market."

Market pricing reflected the uncertainty: Fed funds futures showed December rate cut probability declining from 95% in early November to 67% by November 12, then 63% by November 14, ultimately settling near 40-50% by November 17. The significant repricing represented a notable shift in Fed expectations, transforming from "nearly certain" to approximately even odds in just two weeks. The 6-month Treasury bill settling at 3.80%—squarely within the Fed's 3.75%-4.00% target range—indicated markets expected the Committee to hold in December rather than deliver the additional easing that had been fully priced just weeks earlier.

Treasury Market Dynamics

Treasury yields November 2025 continued their counterintuitive climb despite the Fed having cut rates in October, with the week of November 9-16 seeing uniform 5 basis point increases across all maturities. The 10-year benchmark rose from 4.10% to 4.15%, the 2-year climbed from 3.56% to 3.61%, and the 30-year advanced from 4.70% to 4.75%. This parallel shift higher reflected broad repricing of term premium—the extra yield investors demand for holding longer-dated securities—rather than changing expectations for Fed policy rates. Markets incorporated the reality that the shutdown's data gap would impair policymaking and that fiscal uncertainty would persist regardless of near-term monetary adjustments.

Three Treasury auctions during the week demonstrated solid demand despite the uncertain environment. The 3-year note auction on November 10 showed robust participation with a bid-to-cover ratio of 2.85—the highest in 12 months—and a high yield of 3.579%. The 10-year note auction on November 12 generated solid interest with bid-to-cover of 2.43 and high yield of 4.074%, with indirect bidders (foreign central banks and investors) taking 86.9% of their allocation. The 30-year bond auction on November 13 saw somewhat softer demand with bid-to-cover of 2.29 and high yield of 4.694%, but indirect bidders remained dominant at 90.5% of what they bid for. Primary dealers were left with minimal amounts, indicating strong end-user demand that didn't require dealer facilitation.

Credit Market Conditions

Corporate credit markets maintained tight spreads during the week despite Treasury yield increases and Fed policy uncertainty, with investment grade tightening 1 basis point to 78bp and high yield compressing 5bp to 275bp. These levels represented the tightest in approximately 15 years, reflecting technical support from record fund inflows, solid corporate fundamentals, and foreign demand seeking yield. The $15.18 billion of combined bond fund and ETF inflows for the week ended November 5 (most recent data available) provided substantial buying power that offset concerns about valuations at historically tight levels.

Year-to-date investment grade issuance through November 12 reached $1.499 trillion, surpassing all of 2024's $1.496 trillion total and marking the second-highest year on record after 2020's $1.75 trillion. The strong issuance reflected refinancing activity, M&A financing (13% of 2025 volume), and AI infrastructure capital expenditures from technology and utility sectors. Sector performance showed defensive bias, with healthcare and pharmaceuticals trading around 100 basis points over Treasuries, while utilities led issuance growth with volumes up 18% versus 2024 driven by data center power demand. Rating agency actions remained constructive, with upgrades exceeding downgrades approximately 3:1 for US investment-grade bonds, though high-yield default rates stood at 4.3% as of May 2025.

Policy and Market Implications

The week's events highlighted several considerations for fixed income investors navigating the intersection of missing economic data, Fed policy uncertainty, and tight credit valuations. Duration strategies faced continued challenges as the post-rate-cut yield rise extended, running counter to expectations of curve flattening and bull steepening. Credit over governments remained the preferred stance, with stable-to-tight spreads compensating for Treasury volatility and all-in yields near 4.9% for investment grade offering solid total return potential if spreads held.

The December 9-10 FOMC meeting represents an important decision point, with approximately even odds of cutting versus holding reflecting genuine Committee division rather than market confusion. The permanent gap in October economic data will impair policymaking well into 2026, as Fed officials lack the normal baseline for tracking month-to-month changes in employment and inflation. The delayed September jobs report, scheduled for November 20 release, will provide the first official labor market reading since August and could influence the December narrative if results differ materially from estimates.

Week Ahead Preview

• September Jobs Report (November 20): First official employment data since August becomes critical marker for Fed December decision. Consensus expectations uncertain given two-month delay, but any reading below 100,000 payrolls would strengthen dovish case for cutting.
• FOMC Minutes (November 20): Release of October 28-29 meeting minutes will reveal internal Committee discussions around the decision to cut 25 basis points and provide context for recent dissents and divisions among officials.
• Thanksgiving Holiday (November 28): Shortened trading week with markets closed Thursday and early close Friday will thin liquidity and likely keep activity subdued as investors await December meeting.
• Treasury Auctions Resume: Weekly bill auctions and monthly note/bond offerings will test demand at higher yield levels, particularly given year-end positioning pressures and elevated fiscal borrowing needs.
• Credit Market Year-End Dynamics: Portfolio managers begin positioning for 2026 with potential tax-loss selling in underperforming sectors offset by reinvestment flows from maturing bonds and coupon payments.