The easy money era is officially dead
I spent the morning at my terminal watching the 10-year Treasury yield refuse to budge below 4.15 percent. This is not the holiday rally that Wall Street promised you twelve months ago. Despite the Federal Reserve delivering its third consecutive quarter-point cut on December 10, the bond market is essentially screaming a warning. The math is simple and brutal. The 10-year yield is actually higher today than it was before the Fed began its easing cycle in September. We are witnessing a historic recalibration of the risk-free rate that renders the assumptions of 2024 obsolete.
Why the 64,000 job print changed the game
The November non-farm payrolls report, released just days ago, showed a measly 64,000 jobs added. On the surface, this should have sent yields tumbling as investors bet on more aggressive Fed cuts. I looked deeper into the Bureau of Labor Statistics data. The real story is the data vacuum caused by the 43-day government shutdown in October. We are flying blind. The 162,000 federal jobs lost during the transition are skewing the numbers, and the bond market knows it. According to Reuters’ analysis of the December 10 Fed cut, the committee is deeply divided. Two members dissented in favor of a hold, while one wanted a 50-basis-point slash. This level of internal friction at the Eccles Building is something I haven’t seen since the inflation spike of early 2022.
The yield curve is finally telling the truth
For over two years, the yield curve was inverted, a classic recession signal that many chose to ignore. This week, we are seeing a massive steepening. The 2-year yield has collapsed to 3.51 percent while the 30-year bond is pushing 4.81 percent. This is the market pricing in fiscal dominance. With the new administration’s tax cuts and spending bills set to take effect, the supply of Treasuries is about to explode. I spoke with a primary dealer desk head yesterday who confirmed that the term premia, the extra compensation investors demand for holding long-term debt, has returned with a vengeance. You can see this shift clearly in the daily data provided by the U.S. Treasury’s daily yield curve tracker.
The 2.7 percent inflation ceiling
Inflation is no longer plummeting; it is loitering. The November CPI report came in at 2.7 percent headline and 2.6 percent core. While this is lower than the 2023 peaks, it is well above the 2 percent target. More importantly, the energy index is up 4.2 percent over the last year. I am watching the shelter component specifically, which rose 3.0 percent despite high mortgage rates. This stickiness is why the 10-year yield is anchored. Investors are no longer willing to buy the 3 percent narrative when the real-world cost of living remains on a slow burn. Real-time bond tracking on Bloomberg’s rates and bonds dashboard shows that inflation break-evens are actually rising, not falling, even as the Fed cuts the overnight rate.
Comparing the 2024 dreams to the 2025 reality
Look at the spread between where we were exactly one year ago and where we sit today. The 2-year note has been hammered lower by Fed policy, but the 10-year note has actually moved in the opposite direction. This is a “bear steepener” in its purest form. It means the market is worried about long-term growth and debt sustainability, not just the next Fed meeting. If you are waiting for a return to the 3 percent 10-year yield, you are likely waiting for a ghost. The structural floors of the economy have shifted upward.
| Duration | Yield (Dec 16, 2024) | Yield (Dec 16, 2025) | Net Change |
|---|---|---|---|
| 2-Year Treasury | 4.35% | 3.51% | -84 bps |
| 10-Year Treasury | 4.02% | 4.15% | +13 bps |
| 30-Year Treasury | 4.18% | 4.81% | +63 bps |
| 10Y-2Y Spread | -0.33% | +0.64% | +97 bps |
The data vacuum and the blind cut
I cannot emphasize enough how much the October shutdown has compromised the current economic picture. The Fed’s December 10 cut was a risk-management move, not a victory lap. Jerome Powell admitted in the press conference that the committee is guessing on the extent of labor market cooling because the BLS couldn’t collect survey data for a month. This creates a dangerous lag. If the December jobs data, due in early January, shows that the 64,000 print was just a temporary shutdown glitch, the Fed will have to pause immediately. The bond market is already pricing this in. That is why the long end is selling off even as the short end drops. They are hedging against a Fed that might have to reverse course by the middle of next year.
The technical floor for mortgage rates
For the average consumer, this means the relief in borrowing costs is over. Mortgage rates follow the 10-year yield, not the Fed Funds Rate. With the 10-year stuck at 4.15 percent and moving toward 4.25 percent, 30-year fixed mortgages are likely to stay above 6.5 percent for the foreseeable future. The divergence between the Fed’s actions and market reality is at its widest point in a decade. I’ve watched these cycles for twenty years, and the moment the long-end disconnects from the short-end is the moment the “soft landing” narrative usually falls apart. We are at that inflection point today.
The markets are now looking past the holiday lull toward the first true data test of the new year. All eyes are on the January 13, 2026 CPI release. If that number shows any further acceleration in core prices, the floor at 4.15 percent for the 10-year yield will turn into a launchpad. Watch the 2.7 percent inflation mark carefully; it is the only number that matters for the 2026 outlook.
