Santa Brings GDP Joy, Coal for Cuts

[Andrew Postell]

Treasury yields are modestly higher this morning as markets digest a flat Core PCE reading alongside stronger GDP data. The benchmark 10-year yield is hovering near 4.17%–4.20%, up a few basis points, while the long bond approaches 4.80%. These moves reflect a recalibration of growth expectations: while inflation remains contained, the resilience in GDP suggests the economy is not cooling as quickly as some anticipated, tempering hopes for aggressive Fed easing in early 2026. Prices on MBS are cooler after today’s data, nudging mortgage rates slightly higher.

The Core PCE print, the Fed’s preferred inflation gauge, came in largely in line with expectations, reinforcing the narrative of steady disinflation without a sharp downside surprise. However, the upside surprise in GDP has shifted sentiment toward a “higher-for-longer” stance on rates, even as futures still price in multiple cuts later next year. Credit spreads remain stable, and demand for Treasuries is firm, though the curve continues to steepen slightly as front-end yields lag the move in longer maturities.

Looking ahead, liquidity will thin into year-end, but the interplay between growth resilience and inflation moderation will remain the dominant theme. For now, the bond market is signaling cautious optimism—rates are elevated but not surging, and technicals suggest a balanced tone heading into the holiday period.

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