Eurodollar University OMG… Did You See What Just Happened to Interest Rates?!
Nov 26, 2025
The discussion dives deep into the bond market's surprising reactions, showcasing strong auction demand despite falling yields. As 10-year rates inch closer to 4%, insights reveal that Fed rhetoric on tariff inflation isn't swaying market expectations. A concerning drop in consumer confidence aligns with the bond signals, while recent retail sales data highlights ongoing economic weaknesses. Additionally, soft producer prices and inflation indicators suggest that the fears of tariff-driven inflation may be overblown, setting the stage for intriguing future trends.
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Bull Steepening Beats Fed Rhetoric
- The bond market has been bull-steepening since February and ignores Fed signaling about tariff inflation and rate cuts.
- Market yields and inflation expectations are falling because real economic weakness, not Treasury supply, drives demand for bonds.
Treasury Supply Isn’t The Main Driver
- Treasury supply concerns are narrative-driven and have not caused sustained rejection in auctions.
- Depression economics, not deficits, explain persistent demand for Treasuries despite rising government borrowing.
Two-Year Auctions Show Real Demand
- Two-year auctions show rising bid-to-cover even as yields fall, signaling stronger demand at lower rates.
- That contradiction refutes the 'treasury rejection' narrative and underscores bull market dynamics in notes.