Warsh took away the guardrails. Friday, PCE walks the high wire without a net.
Three weeks ago the call was that his first act as Chair would be to kill forward guidance. He did — by abstention, by stripping the statement, by declining to hand the market a dot to trade. The sell-side has spent the week arriving at the same conclusion in softer language.
That argument is settled. The mechanical question is the one that matters now: what happens to a bond market when the data prints and there's no official forecast left to absorb the surprise?
We find out Friday. May PCE is the first major release of the post-guidance era, and it lands into a curve already positioned for two-way pain.
The setup, read cold off the desk:
2s10s sits at 26bp. 5s2s is 4.5bp. Every measured slope on the curve has flattened over twelve months. A curve this flat is a leveraged curve — it doesn't need a large yield move to invert a key segment, which is exactly why a single inflation surprise carries asymmetric risk this week.
Figure 1 — The 1Y sits at 4.00%, the 2Y at 4.23%, and the belly barely slopes through 4.28% at the 5Y. The 20Y (4.94%) trades rich to the 30Y (4.92%), an inversion at the very long end that says supply, not growth, is setting the marginal price.
igure 2 — 2s10s has compressed roughly 21 bp over the year to 26 bp; 5s30s is down 28 bp to 65 bp. A curve this flat does not need a large yield move to invert a key segment — which is precisely why a single inflation surprise carries asymmetric risk
The Desk Read
A flat curve is a leveraged curve. When 5s2s is 4.5 bp, the difference between “the Fed is done” and “the Fed has one more move” is the difference between a positive and an inverted front end. With no guidance to pre-position the market, PCE doesn't just move yields — it re-rates the entire front-end probability distribution in one print.
Credit is tight and calm. That's not comfort — it's no cushion. IG 1-3Y at 47bp, HY rich, munis the richest sleeve in the complex.
Figure 3 — 1-3Y IG at 47 bp, broad HG ~74 bp, the long end flattening near 92 bp. The shape mirrors the Treasur
And the long end is capped, not by growth but by supply: the 20Y now trades rich through the 30Y, with term premium rising across developed markets — gilts led the selloff this week on the Starmer story.
Figure 4 — The UK 10Y rose 8.6 bp on the day, the largest developed-market move, pushing gilts 36 bp through U.S. 10s. Japan's long end continues its multi-quarter repricing (30Y near 3.88%, up ~97 bp YoY). The US–Bund 10Y spread holds near 150 bp.
Base case into Friday: continued bear-flatten bias, long end capped. The genuinely two-sided risk is whether a soft core can finally let the long end rally on its own — the first time since Warsh took the guardrails off.
Watch 2s10s and the 20s30s inversion. They'll tell you which way the spring uncoils before the headline does.
Full Sunday Look-Ahead — four charts, the Pressure Gauge, the complete desk read — linked in the first comment. Free to read, always. No paywall, no gate.