Rates: Long Ends Get Some Personality
2025-11-06 16:49:00 ET
Here's a question: why is the spread between 2yr SOFR and 10yr SOFR just 30bp?
The 2yr rate is at just under 3.4%. That compares with a 3mth SOFR at 4.0%. On the theory that the Federal Reserve cuts the funds rate by another 75bp in the coming six to nine months, and holds there, that averages 3.35%. So 2yr SOFR at 3.4% looks okay. It could dip a tad lower. But no big issue with where it sits. But the 10yr? At just 30bp above the 2yr, this looks quite tight. One rationale is an implied discount for even bigger cuts than the market currently discounts. That could centre on the notion that something breaks, and the Fed is forced to cut deeper. Maybe. Or it could come from manufactured rotations at the Fed that manifest in the emergence of a super-dovish tilt....
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Rates: Long Ends Get Some Personality
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