- 10-Year T-Note futures have traded around 112.4–113, implying 10-year yields in the low-4% range, with open interest still high.
- Markets have scaled back expectations for aggressive Fed cuts as inflation stays sticky and growth remains resilient, shifting toward modest easing in 2026.
- The curve has re-steepened as 2-year yields fall relative to 10-year yields, leaving a roughly 50–60 bp positive spread.
- Higher inflation/term premium, fiscal deficits, and heavy Treasury issuance keep long-end yields pressured, making curve-steepener and duration positioning key themes.
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Monetary policy expectations are a key driver. Short-rate futures still signal cuts—but only modest ones—in 2026. Investors had earlier bet on more aggressive easing, but recent inflation prints and resilient economic indicators have strained those assumptions. The result is a retreat from earlier forecasts calling for 4 or more cuts, toward perhaps one or two. &
Inflation remains a tailwind pushing up long-term yields. Term premium—the extra compensation required for holding longer maturities—has risen as markets price in persistent inflation, fiscal deficits, and economic policy uncertainty. Contributions to rising long-end yields are also coming from supply: higher issuance of long-duration Treasuries adds pressure.
The yield curve has re-steepened. Decades of inversion lifted yields on short maturities above mid-curve levels; now, with expectations of rate cuts ahead, 2-year yields have dropped, leaving 10-year yields significantly higher, producing a steepening spread around 50-60 basis points. & Investors are adjusting portfolios: underweighting short rates, considering long duration, and exploring steepener trades.
Strategic implications include:
– For institutional fixed income: selectively increasing duration exposure in the 7-30 year sector, with risk management around rate sensitivity.
– For hedge strategies: curve trades (long 10-year vs short 2-year) may offer asymmetric upside if cuts materialize and inflation eases; conversely, long shallow positions could suffer if inflation resurges.
– Portfolio construction: inflation linked products and real yields become central; active monitoring of fiscal policy, Treasury issuance, and Fed communications is critical.
Open questions for 2026:
– Timing and magnitude of Fed rate cuts—how many, when, and how dovish will policy pivot be?
– Inflation trend: whether disinflation continues, stalls, or reverses amid supply chain, labor, and energy pressures.
– Treasury issuance: fiscal deficits and duration bias; large bond supply may elevate term premium and yields regardless of Fed action.
– Global capital flows and safe-haven demand: if global credit stress or geopolitical risk rises, Treasuries might benefit, muting yield increases.
Supporting Notes
- 10-Year T-Note futures closing prices have been ~112.40–113 for CME contracts in December 2025.
- CBOT open interest for 10-Year futures is ~5.426 million contracts in mid-December 2025, up ~22 % year-over-year from ~4.45 million.
- Ultra 10-Year T-Note futures have a tight delivery basket (9y5m to 10y) offering more precise exposure around the 10-year point on the curve.
- Despite widespread Fed cut expectations, 10-year yields remain elevated due to inflation concerns, leading to some analysts paring back rate cuts.
- Goldman Sachs revised its forecast for year-end 2025 10-year yields downward (to ~4.00 %) amid economic slowdown risks, though still expecting elevated levels.
- Wedbush analysis: yield curve shows steepening—10-year yield ~4.06 %, 2-year ~3.51 %, spread ~55–59 basis points.