When Yields Don't Reflect Slowing Growth Signals.
What Changed? | As 2025 draws to a close, long-term Treasury yields and core inflation measures are telling a story that feels out of sync. The 10-year Treasury yield remains elevated even as inflation pressures ease and leading economic indicators continue to weaken. In a typical cycle, slowing growth and cooling inflation push long-term yields lower; this year, they have stayed firm. | The disconnect became clearer after recent Federal Reserve policy, where rate cuts were anticipated due to decelerating inflation pressures. Yet the long end of the yield curve barely budged. That suggests the market may still be pricing risk premia inconsistent with underlying macro data — a condition that often precedes sharp yield adjustments. | | Have You Seen this Strange Elon Musk Device? | | Tech legend Jeff Brown predicts this "space technology" will be Elon Musk's next trillion-dollar business… | And it will make a lot of people rich. | Click here to see the details because this could be the biggest internet innovation since the first web browser Netscape kicked off the internet boom in the late 1990s. | | The Numbers | 10-Year Treasury Yield: The 10-year Treasury constant-maturity yield was about 4.14% in early December 2025, according to Federal Reserve data — near the highest average in the post-pandemic era. Core PCE Inflation: The core Personal Consumption Expenditures (PCE) price index — the Fed's preferred inflation measure excluding food and energy — rose 2.8% year-over-year in September 2025, slowing from prior months. Leading Economic Index (LEI): The Conference Board's Leading Economic Index declined 0.3% in September 2025 to 98.3, marking a second consecutive monthly drop and signaling further slowing economic momentum.
| These figures reflect the latest official releases: the Federal Reserve's H.15 yield data, BEA's PCE price index release, and the Conference Board's LEI press release. | | Why It Matters | The combination of sticky long-term yields with moderating inflation and a weakening leading index suggests a potential mispricing in bond markets. Normally, when inflation pressures retreat and leading indicators point toward slower growth, long-term yields tend to come down to reflect lower expected returns and reduced risk premia. Instead, yields have not compressed as much as the data might imply. | This creates an unusual environment for investors. Bonds may offer attractive real yields relative to inflation, despite tepid macro momentum. Long-duration Treasuries, in particular, could benefit if growth slows more than markets currently price or if inflation expectations continue to adjust downward. In contrast, risk assets like equities and credit are priced for a smooth soft landing — leaving them more vulnerable to downside surprises. | Bond investors are essentially being compensated with a higher term premium in a backdrop where inflation is moving toward target and economic growth looks fragile. If markets fully reconcile these divergent signals, the adjustment is more likely to come through lower yields than through a sudden uptick in inflation or a sharp acceleration in growth. | | Takeaway | The bond market is pricing a risk narrative that doesn't fully align with the leading macro data we currently observe. With core inflation subsiding and economic momentum softening, yields may have room to adjust downward. That divergence makes bonds — particularly long-term Treasuries — an asset class worth watching closely as 2026 approaches. | — Lauren Brown
Editor, American Ledger | | Sources | Federal Reserve Bank of St. Louis, December 2025 https://fred.stlouisfed.org/series/DGS10 | Bureau of Economic Analysis, December 2025 https://www.bea.gov/news/2025/personal-income-and-outlays-september-2025 | The Conference Board, December 2025 https://www.conference-board.org/pdf_free/press/US%20LEI%20PRESS%20RELEASE-Dec%202025.pdf |
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