Kevin Warsh is now Fed Chair, the 30-year Treasury just touched its highest yield since 2007, and markets are pricing zero cuts for the remainder of 2026. The duration bear thesis has not broken — it has been confirmed. TLT is down 1.25% YTD and the structural ceiling on long bonds keeps getting raised.
The transition is complete. Kevin Warsh was unanimously confirmed as Federal Reserve Chairman, and the bond market already knows what that means. The 10-year yield hit 4.57% — a one-year high — and the 30-year reached 5.08%, a level not seen since before the 2008 financial crisis. HSBC called Treasuries a 'danger zone.' The data backs that call.
The April 28-29 FOMC meeting held rates at 3.50%-3.75%, but the vote was 8-4 — the highest level of dissent since October 1992. Three dissenters opposed the easing bias in the statement. One wanted a cut. The internal fracture is real, but the direction of the fracture matters: the committee is not coalescing around cuts, it is fragmenting toward a harder line. With Warsh now formally in control, the easing bias that Powell preserved is structurally at risk.
The inflation picture has not cooperated with the doves. Core PCE came in at 3.2% for the 12 months through March — well above the 2% target and above the core CPI reading that was already alarming. Goods prices rose 3.8% year-over-year. Near-term inflation compensation moved higher in the April minutes even as longer-term expectations held anchored. That divergence is the Fed's entire problem in one sentence: credibility on the long end is holding, but the near-term data keeps biting.
Options markets are now pricing approximately 30% probability of a rate hike by Q1 2027. Median survey expectations still show two 25-basis-point cuts over the next year, but traders are increasingly betting no cut happens in 2026 at all. The Fed's own projection, as reported, shows one cut penciled in for 2026 — a projection that looks increasingly optimistic given the trajectory. TLT at $84.68, down 1.25% YTD, tells the story without narrative. LQD is barely flat at -0.12% YTD. The front end of the curve at 4.13% on the 2-year and 4.56% on the 10-year gives a 43-basis-point spread — steepening, but not from rate cut optimism. It is steepening because the long end is unanchoring.
The prior post flagged a potential inflection point if core PCE came in at or above 3.0%. It came in at 3.2%. That is the worst-case inflation path confirmed. The bear thesis on duration is intact and has firmed. Warsh has not yet formally delivered his policy framework speech, but the market is not waiting. Until core PCE shows a sustained move below 3.0% or the labor market cracks in a way that forces the Fed's hand, long duration remains the wrong trade.