Behind the Yield

Behind the Yield: November 6, 2025

The Market Has Already Done Your Math for You

By Charles Urquhart, CFA · November 6, 2025

The Market Has Already Done Your Math for You

By now, we know one fact: the bond market does not care about your press conference. Even after the Fed cuts, the 10-year yield sits at 4 percent and remains completely unresponsive.

Not because it's rebelling against you, Powell -- it's doing the math. The Treasury Department is refinancing approximately seven trillion dollars in outstanding debt. These are not new borrowings; they're rollovers. As a result, the Treasury receives a higher coupon than was previously received, which is generally 2-3 percentage points greater than the original rate. This increases the U.S. federal interest bill by anywhere from $150 to $200 billion per year, which is a fiscal problem that compounds. That is why the long end of the curve is so heavily weighted. The market is not ignoring you, Powell -- it's just taking into account Yellen.

Treasury: What We Know

All year, short-term Treasuries have done their job. For those advisors who invested in 1-3 year Treasuries, they've earned some real money and maintained the ability to remain liquid. Ladders within that time frame have also functioned as they were intended to do -- generating cash flow and maintaining flexibility to reinvest in higher-yielding Treasuries in the event the yields increase.

The long end of the curve remains the market's naughty child. Supply outpaces all efforts to push yields lower despite a consistent stream of dovish commentary. While coupon sizes appear frozen in time, every new refunding announcement tips the scales in the direction of more supply, not less. The back end will remain rangebound as term premium prevents yields from going lower.

Between now and year-end, long-term interest rates will continue to fluctuate. While inflation may continue to decline, the fiscal math remains in place. If you're looking for stability, I recommend investing in the short to intermediate term and building a portfolio around structure, rather than speculation.

Credit: Still Priced for Calm, But No Longer Margin for Error

While credit markets are still being priced for calm, they are no longer pricing for any margin for error. Investment-grade credit spreads are at 1% over Treasuries, and high-yield is currently at 3%. Both are extremely tight levels, given the large amount of debt that must be refinanced over the next eighteen months.

As maturities begin to roll, corporates will begin to feel the effects of the increased cost of funding. Leveraged loans and private credit will experience the same impact. The issue is not credit quality today, the issue is when old debt meets new rates.

At this point, I prefer short to intermediate investment grade corporate exposure as part of a ladder. It provides the advisor with a disciplined level of risk and a meaningful level of yield. I am not fond of long dated or low rated credit. From a risk adjusted perspective, the math does not add up.

Patient investors may find value in private credit and interval funds. However, the investor must clearly understand that these are long duration and illiquid investments. They are not a substitute for a transparent and liquid bond sleeve.

What Advisors Should Tell Their Clients

When a client hears the headlines -- "The Fed is easing." "Rates are falling." -- they assume this translates to lower yields across the board. And when it doesn't, they become confused. This is where the advisor earns his keep.

Explain to the client that the bond market now takes into consideration the fiscal math (i.e., the refinancing of government debt) rather than the monetary math (i.e., the central bank's actions). Explain that every Treasury auction is a reminder that supply drives yield. Explain that structure beats speculation. A well-built ladder or barbell portfolio is designed to own this economic cycle, not react to it.

Short bonds provide the ability to generate cash flow and maintain reinvestment power. The long end of the curve provides the advisor with the ability to generate ballast and compounding. The middle area of the curve serves as the connection point between the short end and the long end -- the area where cash flow and duration risk are balanced. That is how you explain calm when the headlines do not.

The Clarity Point

Fiscal Rollover is the New Rate Risk.

The market is not fighting the Fed -- it is discounting the math.

And the advisors who anchor their client portfolios in structure, rather than in narrative, will be the advisors that their clients remember when volatility returns.