Policy Levers
Warsh's Conundrum Hypothesis: When long yields rise despite Fed easing due to fiscal debt supply, traditional monetary transmission breaks down.
2-Year Treasury Yield
4.42%
Policy sensitivity proxy
10-Year Treasury Yield
4.85%
+43 bps spread
Yield Curve Regime
Bear Steepening
Long rates rising faster than short
Wall St Banking Stress
42.5
Cautious
HTM bond losses & liquidity index
Kevin Warsh Conundrum Assessment
Bear Steepener Dilemma Active
The 10-year yield is trading at 4.85%, outpacing the 2-year yield (4.42%). Long-term borrowing rates are surging due to heavy Treasury supply and elevated term premium (+0.75%), effectively neutralizing Fed rate cut expectations and driving mortgage and corporate credit costs higher.
Transmission Channel: If the Fed cuts short rates while term premium stays unanchored, the curve steepens aggressively, hurting regional bank balance sheets holding long-duration securities.
Wall Street Financial Telemetry
- 2Y/10Y Spread: +43 bps (Steepening)
- 30Y Long Bond: 5.25% (Mortgage rate pressure)
- Reserve Drain: QT at $60B/mo draining reverse repos
- FOMC Dilemma: Rate cuts risk fueling long-end debt revolt