The Mechanism
The Hawk in Dove's Clothing
The Federal Reserve cut rates, but the accompanying statement was hawkish. They emphasized that "inflation moved up and remains somewhat elevated."
This triggered a classic "front-end easing / long-end repricing." The market is looking past the immediate cut, pricing in higher long-term yields due to persistent inflation risks.
Summary of Economic Projections (SEP)
The December SEP revealed a notably stronger economic outlook compared to September.
"Basically poison for TLT."
Higher expected growth + inflation not fully tamed = Rationale for higher yields.
GDP Forecast Revision (2026)
Why the Dollar Held Ground
Rising Long-End Yields
Attractive rate differentials and real yield support relative to other currencies.
Risk-Off Sentiment
Investors seeking safety in the USD amidst volatility, bidding up value.
Targeted Fed Liquidity
Purchases of short-term Treasuries support liquidity without suppressing long-end yields.
Key Indicators Monitor
US10Y & Real Yield
Primary driver of TLT weakness.
2s10s Curve
Bear Steepening confirmation.
DXY Level
Critical Support Zone: 98.3–98.4
Synthesis: If DXY holds >98.3 while 10Y yields rise, the "front-end easing / long-end repricing" thesis is validated.