The shape, not the level
The 2s10s steepened 45bp in eight weeks. Realized term premium, per the Adrian-Crump-Moench model, is back above zero for the first time since 2017.
What that means
Bond investors want to be paid to own duration again. Translation: they no longer trust the Fed to absorb supply.
What breaks first
- Long-duration tech at 35x earnings.
- Regional bank held-to-maturity books, again.
- EM carry trades funded in JPY.
None of this is priced into IG credit, where spreads remain near cycle tights.