Fed Decision Headlines this
Week
The centerpiece of this week’s
bond market narrative is the upcoming FOMC meeting on December 10, where the
Fed is widely expected to deliver its third consecutive rate cut, lowering the
target range to 3.50% - 3.75%. Futures pricing reflects near-certainty of a 25
bps reduction, but recent labor strength—highlighted by jobless claims hitting
their lowest level since 2022—has introduced nuance. While easing remains the
base case, policymakers may pair the cut with hawkish messaging to temper
expectations for aggressive follow-on moves. This “cut with caution” stance has
kept volatility elevated and yields sensitive to every data point.
Labor Market Resilience and
Inflation Signals
Bond traders are grappling with
conflicting signals: ADP data showed job losses, yet initial jobless claims
plunged to 191k, reinforcing labor market durability. Combined with Core PCE at
2.8% YoY, these readings suggest inflation is cooling but not collapsing, and
employment remains strong enough to challenge the urgency for deep cuts. This
dynamic has pushed Treasury yields slightly higher to start the week, with the
10-year hovering near 4.17%, as investors recalibrate expectations for the
Fed’s path beyond December.
Year-End Positioning and
Liquidity Constraints
As we approach year-end, thin
liquidity and portfolio rebalancing are amplifying moves in the bond market.
Dealers and asset managers are adjusting duration exposure ahead of the Fed
decision and the release of updated economic projections and the dot plot.
These flows, combined with cautious sentiment around 2026 growth forecasts,
have contributed to choppy price action in Treasuries and MBS. The market’s
tone is defensive, with participants hedging against surprises in Fed guidance
while positioning for potential volatility around next week’s data-heavy
calendar.
WEEKLY INTEREST RATE SNAPSHOT (Images)
*National average rates are
provided by Bankrate.com and Bloomberg Professional as of 12/8/2025 and are not
advertised rates from Rate, Inc.
