Warsh Day One. The Curve Is Already Talking.
Kevin Warsh is sworn in at the White House this afternoon. The bond market does not need the ceremony to know what kind of chairmanship this will be. The curve has been writing it for weeks.
US Treasury yields this morning: two-year at 4.09%, five-year at 4.24%, ten-year at 4.57%, thirty-year at 5.08%. The 5Y-2Y spread sits at fourteen basis points. The 10Y-5Y at thirty-two basis points. The 30Y-10Y at fifty-two basis points. Read those three numbers in sequence and the curve shape resolves into a coherent thesis. The front end is flat. The belly is flat-to-shallow. The long end is steepening into the new chairmanship.
That is not the curve of a market positioned for a dovish Fed. A market positioned for a clean dovish cycle would steepen everywhere — front end coming in as cuts price, long end holding flat as duration absorbs the cuts. What is happening instead is selective steepening concentrated at the long end while the belly compresses. The signal that pattern delivers is precise. The front end is anchored to a Fed reaction function that the bond market believes will deliver some front-end easing. The long end is selling off because the financing of the AI capital expenditure boom is hitting the long end of the curve before the productivity story can offset it.
The Yield Spreads Matrix this morning makes the global comparison stark. The US 30Y-2Y spread sits at ninety-nine basis points. Japan is at 258 basis points. Germany is at ninety-five. The US curve is closer to Germany than it is to Japan, but the direction of recent movement is unambiguously toward Japan. Long-dated supply pressure is the universal experience of every developed sovereign curve. The financing of the buildout is structural, not cyclical.
The credit complex is telling its own version of the same story. Investment grade broad OAS at seventy-five basis points. High yield broad OAS at 280 basis points. CCC OAS at 935 basis points. The IG-HY spread compression looks calm. The CCC blowout does not. The bottom of the credit ladder is repricing the refinancing math while the middle of the ladder holds at near-floor spreads. That is the late-cycle credit pattern. The bond market is sorting credits inside the high yield index in a way the headline spread does not reflect.
Year-to-date credit total returns: US High Grade across maturity buckets between three and six percent. Emerging Markets High Yield leads at 10.2 percent. Latin America EM at 9.2 percent. Institutional capital is reaching into emerging market high yield because US investment grade is at the floor and not paying. That is the same carry-trade pressure that is driving the off-balance-sheet SPV financing of the hyperscaler buildout. The structural buyer is reaching for yield wherever it can find it. The institutional market has bifurcated into a tight, low-volatility US IG complex and a high-volatility, high-carry reach for yield everywhere else.
Today's binary event is the White House ceremony. Watch the thirty-year reaction across the cash session and the December SOFR futures contract. The pre-bell headlines suggest yields are easing into the open on Middle East peace progress. That cross-current makes the swearing-in read cleaner — if yields are pressing lower on geopolitical relief and the long end still holds above 5.05 percent, the AI capex supply pressure is winning the curve shape argument in real time.
Warsh has been publicly committed for two years to a two-sided policy book — front-end easing combined with balance sheet reduction at the long end. The press has called the framework contradictory. The curve this morning is pricing it as the only framework that actually fits the data.
The bond market saw the man before the political narrative did. Today it sees the chairmanship before the ceremony does.
Educational and macro commentary only. Not investment advice. Views are my own and do not represent any employer or affiliated entity. Subject to CFA Institute Standards of Professional Conduct. © 2026 Positive Carry LLC, 6586 Atlantic Ave #115, Delray Beach, FL 33446