US | Yield curve steepens further after Fed’s 2025 rate cuts conclude

Summary

Elevated term premia likely driven by fiscal and institutional risks keep long-end yields high despite stable inflation expectations. Outside isolated episodes of turbulence, markets have reflected favorable conditions over the year and throughout the easing cycle.

Key points

• Key points:
• The risk of tariff-inflation persistence and the ongoing resilience of activity will likely justify the decision to keep rates around neutral but closer to restrictive levels in the next months.
• The Fed’s rate cut mechanically widened long-end yields relative to shorter maturities, but the persistence of long-end spreads continues to point to mixed factors.
• The real yield curve rose in parallel by about 10 bps on average over the past month, despite stable—and even easing—market-implied inflation expectations.
• The move reflected an increase in the term premium, which for the 10-year yield is again at c. 80 bps after averaging closer to 60 bps since mid-September.
• Markets currently see just a 20% chance of a fourth consecutive rate cut next month and roughly 50-50 odds to the fed funds rate ending 2026 above or below 3%.

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