What the bond market is pricing before the open:
Retail sales just printed the strongest month in over a year. Advance 1.7% against a 1.4% survey. Control group — the one that feeds directly into GDP — came in at 0.7% against a 0.2% estimate. That's not a beat. That's a demolition of the rate-cut narrative.
Treasuries sold off immediately on the print. 10Y at 4.27, 30Y at 4.88. But the real tell is the SOFR strip. Forward fed funds contracts just repriced lower. The curve flattened. The market is telling you the consumer doesn't need help, which means the Fed doesn't need to provide any.
This matters today because Warsh sits at Senate Banking in 75 minutes.
The consensus framing has Warsh as a Trump-aligned dove who delivers cuts on command. That read is half right and entirely wrong in the direction that matters. Warsh is a balance sheet hawk. He has been consistent on this for fifteen years. The market's cut path assumes a Fed chair who wants to ease. Today's data says the economy doesn't want easing, and the nominee doesn't want to ease the balance sheet either.
Corporate credit is where this gets interesting. IG corporate OAS is sitting at 79 bps — near the low end of the 3-month range. Spreads are complacent. If Warsh confirms the hawkish stance during questioning, the repricing hits credit before it hits Treasuries. That's how this cycle ends — not with a yield spike, but with a spread decompression the long-only crowd isn't positioned for.
Watch during the hearing:
Any question on balance sheet runoff pace. His answer on QT is the real signal, not the rate path.
Senator Tillis — criminal investigation into the sitting Fed chair means the confirmation vote itself is a live wire, not a formality.
Reaction in SOFR Dec 2026 contracts. If they sell off further during his testimony, the market has made up its mind.
Bond market one-liner: The consumer is fine. The data said so at 8:30. The curve believed it by 8:35. By 11 AM, we'll know if the nominee does too.
Overseas: UK gilts continuing their quiet disaster — 10Y up 40 bps over three months, now 4.86%. Japan 10Y at 2.37%, carry trade still anchors. US-Germany spread 129, US-Japan 189 — dollar-denominated duration remains the cleanest expression of US exceptionalism.
Oil: WTI 88.80, off 81 cents. Ceasefire winding down per TOP. If it holds through the week, we get the Iran premium unwind and inflation prints ease at the margin. If it doesn't, the inflation backdrop complicates every word out of Warsh's mouth today.
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This edition references the confirmation hearing of Kevin Warsh and U.S.–Iran geopolitical developments. Analysis reflects the author's interpretation of publicly available information. Nothing in this analysis should be interpreted as prediction or guidance regarding any specific security, sector, or investment strategy. |
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