At Any Rate US Rates: Yield curve bull flattens ahead of September FOMC
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Sep 12, 2025 This week, US rates strategists delve into the intriguing bull flattening of treasury yields and its implications. They dissect labor market reports and inflation data shaping Federal Reserve expectations. With the upcoming FOMC meeting in mind, they discuss the potential for a 25 basis point rate cut and the complexities of corporate tax day effects on funding markets. Additionally, they analyze a decrease in implied volatility linked to shifting Fed policies and explore the valuation dynamics of options in this evolving landscape.
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Three Drivers Behind This Week's Bull Flatten
- The week's bull flattening reflected fundamentals, technicals and mean reversion acting together.
- Long-end demand, position unwinds and CTA momentum buying concentrated the move at the long end.
Data Drove Long-End Duration Demand
- Labor and inflation data together pushed a strong bid for duration after the August employment revision and softer PPI.
- The rally concentrated at the long end while front-end yields actually rose slightly this week.
Positioning And Momentum Amplified The Move
- Technical positioning amplified the long-end rally as active funds reduced underweight duration and unwind steeper curve bets.
- Crossing momentum thresholds also triggered CTA buying that exacerbated the move.