Group 1 - The relationship between market valuation (P/E10) and inflation shows significant patterns across three distinct periods: January 1881 to December 2007, January 2008 to February 2020, and March 2020 to the present [1] - The current P/E10 stands at 39.8, with a year-over-year inflation rate of 2.22%, indicating that the market is within the "sweet spot" of 1.4% to 3.0% inflation, historically associated with higher valuations [2] - The historical average P/E10 is 17.7, providing a benchmark for assessing current valuations, which are significantly higher than this average [3] Group 2 - The extreme overvaluation during the tech bubble (June 1997 to January 2002) is characterized by a P/E10 of 25 or higher, highlighting the risks associated with current valuations [3] - The shaded red area in the graph indicates the inflation "sweet spot" (approximately 1.4% to 3.0%), a range historically linked to elevated market valuations [3]

Core Viewpoint - U.S. Treasury yields increased as the market faced reduced pressure from year-end funding issues in the repo market [1] Group 1 - U.S. Treasury yields experienced an uptick, indicating a shift in market dynamics [1] - The year-end funding pressure in the repo market, which had been a concern, has started to recede, contributing to the rise in yields [1]

Core Insights - The yield on the 10-year Treasury note finished at 4.18% on December 31, 2025, while the 2-year note ended at 3.47% and the 30-year note at 4.84% [1] - The inverted yield curve, where longer-term Treasury yields are lower than shorter-term yields, is a reliable leading indicator for recessions, with the 10-2 spread turning negative before recessions [2][3] - The average lead time to a recession based on the first negative spread date is approximately 48 weeks, while using the last positive spread date yields an average lead time of 18.5 weeks [4][6] Treasury Yield Analysis - The 10-3 month spread also indicates lead times to recessions ranging from 34 to 69 weeks, with similar patterns observed as in the 10-2 spread [5] - The most recent negative spread for the 10-2 occurred from July 5, 2022, to August 26, 2024, while the 10-3 month spread was negative from October 25, 2022, to December 12, 2024 [3][5] Mortgage Rate Trends - The Federal Funds Rate (FFR) influences borrowing costs, and typically, an increase in the FFR leads to higher mortgage rates; however, recent trends show mortgage rates declining despite the Fed's rate-cutting cycle starting in September 2024 [7] - The latest Freddie Mac Weekly Primary Mortgage Market Survey reported the 30-year fixed mortgage rate at 6.15%, the lowest since October 2024 [7] Market Behavior and Federal Reserve Influence - Federal Reserve policy has significantly influenced market behavior, particularly in relation to Treasury yields and mortgage rates [8]

Core Viewpoint - Treasury yields have decreased as the year-end approaches, indicating a period of quiet trading in the bond market [1] Group 1 - The decline in Treasury yields suggests a shift in investor sentiment as the market prepares for year-end [1] - The trading environment has been characterized by low activity, reflecting a cautious approach among investors [1]

Core Viewpoint - U.S. Treasury yields remained stable during a holiday-shortened week, reversing much of the previous rise after the U.S. economy reported a 4.3% annual growth rate in Q3 [1] Group 1: Economic Data Impact - The reported 4.3% annual growth in the U.S. economy for the third quarter contributed to a rise in two-year Treasury yields, reaching a 13-day high of 3.559% [1] - Investors adjusted their expectations regarding a potential interest-rate cut in January following the economic data release [1] Group 2: Market Sentiment - The economic data is considered backward-looking, prompting traders to remain vigilant for indicators of a weakening job market and slowing inflation [1]

Group 1 - Treasury yields are rising, reversing last week's declines, influenced by an increase in Japanese government bond yields following the Bank of Japan's interest rate hike [1] - Traders are anticipating the delayed first-estimate U.S. third-quarter GDP data, which is set to be released at 8:30 a.m. Eastern time on Tuesday [1] - Any weakness in the GDP data could enhance the prospects for U.S. interest rate cuts, potentially leading to lower Treasury yields, especially after recent inflation figures fell below forecasts [1] Group 2 - The Conference Board's December consumer confidence index will be released at 10 a.m. Eastern time and is expected to be closely monitored [2] - Trading activity may slow down following the consumer confidence index release due to the holiday-shortened trading week [2]

Treasury Yields and Economic Indicators - The yield on the 10-year Treasury note was 4.16% as of December 19, 2025, while the 2-year note was at 3.48% and the 30-year note at 4.82% [1] - An inverted yield curve occurs when longer-term Treasury yields are lower than shorter-term yields, with the 10-2 spread being a reliable leading indicator for recessions, typically turning negative before recessions [2][3] - The average lead time to a recession based on the first negative spread date is approximately 48 weeks, while using the last positive spread date yields an average lead time of 18.5 weeks [4][6] Mortgage Rates and Federal Funds Rate - The Federal Funds Rate (FFR) influences borrowing costs for banks, which in turn affects mortgage rates; however, recent trends show mortgage rates declining even as the Fed held rates steady, with the latest 30-year fixed mortgage rate at 6.21% [7] Yield Curve Analysis - The 10-3 month spread also serves as an indicator for recessions, with lead times ranging from 34 to 69 weeks after turning negative, similar to the 10-2 spread [5] - The 10-2 spread was continuously negative from July 5, 2022, to August 26, 2024, indicating potential recession signals [3]

Treasury yields rose to a three-month high on Wednesday morning despite Wall Street's near certainty that the Federal Reserve was just hours away from cutting interest rates. https://t.co/19Y3SgYfpi ...

Core Viewpoint - U.S. Treasury yields have decreased slightly, indicating that investors are preparing for the Federal Reserve's policy decision, with a significant likelihood of a rate cut. Group 1: Market Expectations - A 25-basis-point rate cut is anticipated with a 90% probability, highlighting strong market expectations ahead of the Fed's announcement [1] - Investors are particularly focused on the Fed's projections and comments from Chair Jerome Powell, which may influence future market movements [1] Group 2: Fed's Stance - The Federal Reserve is expected to adopt a cautious tone while incorporating some hawkish elements to maintain policy flexibility, as noted by MFS Investment Management [2]

Core Viewpoint - As Treasury yields decline, dividend stocks with higher payouts and the capacity to sustain them are increasingly viewed as attractive alternatives to bonds [1] Group 1 - The current environment of falling Treasury yields is prompting investors to seek alternatives that provide better returns [1] - Dividend stocks are highlighted for their potential to offer higher payouts compared to traditional fixed-income investments [1] - The ability of these dividend stocks to maintain their payouts is a critical factor in their appeal as a bond alternative [1]