New lows in yields coming?

February 15, 2026 – Weekly Comment
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Two-yr yield has been between 3.43 and 3.63 since October.  On Friday it ended at 3.41, a clear breakout to a new low.  The 5y had lows of 3.56 in Sept, 3.55 in October and 3.56 in November.  5y yield popped to a high of 3.86 in Jan, but ended Friday at 3.61, essentially equal to the midpoint of the current FF range and near the five month triple bottom.  The ten-yr was as high as 4.28 at the start of this month, but ended at 4.05, a drop in yield nearly equal to a 25 bp cut.  Same with the 30y, high of 4.92 on Feb 4, and now 4.70.

In looking back at previous large yield drops in the 30y yield, the beginning of September stands out.  The market was looking for an ease in Sept, and the payroll data on 5-Sept provided the final excuse.  NFP of +22k and rate of 4.3%.  From Sept 2 to Sept 8, the 30y yield plunged 27 bps from 4.96 to 4.69.  As mentioned above, from Feb 4 to Feb 13, the 30y yield has fallen from 4.92 to 4.70.  The closing yield on Sept 8, the Monday after payrolls, and now is identical.  The table on the next page shows Sept 5 closes to Friday’s (Feb 13)

The Fed eased Sept 17, 2025, just after the data.  At the time, the Fed Effective rate was 4.33%.  Rate cuts came in Sept, Oct and Dec bringing current EFFR to 3.64%.  Yet many prices in the table are nearly the same!  In September, the two-year was already telegraphing an ease, and even though there have been 75 bps of cuts since then, the yield is only down 10 bps.  The 2/10 treasury spread and red/gold SOFR pack spread are both only steeper by 8 bps.  What appears somewhat out of line, in my opinion, is the 5y yield, which is actually 3 bps higher now than in Sept, and also the peak SOFR contract, SFRH7.  While the 2 yr is 10 lower in yield from Feb, the 5yr is 3 higher and SFRH7 is 13.5 higher (price difference used in table below). 

 Of course, in September, H7 was in the 7^th quarterly slot and now it’s 5^th slot.  In early Sept, the spread between EFFR and SFRH7 was 146 bps, but it’s now only 63.5 bps.  Currently, the 7^th slot is SFRU7, at a priceof 9696.

	9/5/2025	2/13/2026	DIFF
2Y	3.51	3.41	-0.10
5Y	3.58	3.61	0.03
10Y	4.08	4.06	-0.02
30Y	4.77	4.70	-0.07
10y B/E	2.37	2.30	-0.07
2/10 spd	0.57	0.65	0.08
red/gld sofr	0.51	0.59	0.08
Peak SFRH7	9713	9699.5	-13.5
SPX	6481	6836	355
NDX	23652	24733	1081

What does this little exercise tell us?  If history repeats, it’s that the 30y yield probably has more to fall.  I would also say that if I were to buy any treasury, it would likely be the 5y at this point.  My feeling is that red SOFR contracts, currently H7, M7. U7 and Z7 are lagging in terms of prices.  That is to say, perhaps prices in reds should be closer to the old highs of 9715-20. 

I am not suggesting in the above brief summary, that one should do something like buy 5/30 spread, though I do believe that’s a reasoable trade.  My personal strategy would be to use options to play for a possible breakout in the five year (below 3.55 yield) and/or to do the same in red SOFR contracts, targeting 9725 to 9750.  (Certainly, a lot of call structures have gone through SOFR contracts expressing the same idea).

There are a couple of other notes relating to the table:  First, stocks have essentially gone sideways since the September ease cycle began, with a slight upside bias.  I’m not including a chart, but it’s worth mention that NDX (Nasdaq 100) made its high on October 25, 2025, just before the Oct 29 Fed cut.  Last week I had observed that SPX made its high in October 2007, after the initial 50 bp ease in Sept 2007.  There appear to be similarities.

One other point: MOVE appears to have bottomed, closing at the high of this calendar year at 70.10.  Low in late January was 55.77.  It’s too early to call this move a breakout, but it does lend support to a view that yields are moving lower. 

Below is a chart of the rolling red pack spread.  I’ve thought repeatedly (mostly incorrectly) that the upper limit of 9715 to 9720 associated with past market blow-ups would give way, and that reds might set up in a range of something like 9710 to 9760, which would be consistent with a terminal funds rate of 2.25 to 2.5%.  Growth data remain fairly solid and inflation is sticky, so the implication is a real rate near zero.  If the AI bust develops, it’s not an outlandish scenario.

This week’s major release is Friday’s PCE Prices, expected 0.3 both headline and Core, up from +0.2.  YOY expected 2.8 from 2.8 with Core 2.9 from 2.8.  Twenty-year auction. $16B, on Wednesday.

OTHER THOUGHTS

I’m just going to cite a few trades from Friday here.  First, s seller of over 50k SFRU6/Z6 3-month calendar spread, mostly at -11.5.  One week ago on Feb 6 the spread was -7.5 and on Friday it settled -12.5…big move for a 3-m spread.  The three-month calendars in front are March/June at -22 and June/Sept at -24.5, so natural roll is a tailwind to the Sept/Dec sale, as is the thought that actual Fed cuts could be delayed due to Warsh’s confirmation schedule.  Surprisingly, prelim open interest shows U6 -8.9k and Z6 +14.3k.  I would have expected large increases in both. 

SFRZ6 settled 9696 or 3.04%.  The last FOMC SEP pegged end-of-2026 FF at 3.4% and 2027 at 3.1%.  The market has moved that timetable up.  SFRZ6 now has the most Open Int of any SOFR contract at 1.44m, next closest is SFRU6 at 1.39m.  In SOFR call options, the largest open interest of any strike is SFRU6 9700c with 528k open, settled 13.5, 0.37d vs 9683.5.  On Friday, there was a new buyer of SFRU6 9800c, paying 4 for 30k (4.5s) and then 3 for 40k 9800/9900cs.  The first FOMC with Warsh at the head may be in June, but centering positions in September buys a little more time, which makes sense.    

One skew trade of note late Friday:  TYJ6 112/114 risk reversal covered 112-315, buyer of 40k paying 6 for the call.  Settles: TYM6 113-025, 114c 0’24s (open int +49k) and 112p 0’15s (OI +22k).  So the rr settled 9 vs 113-025, a clear indication that fear is to the upside.

	2/6/2026	2/13/2026	chg
UST 2Y	349.3	341.2	-8.1
UST 5Y	375.5	361.2	-14.3
UST 10Y	421.6	405.8	-15.8
UST 30Y	485.3	470.2	-15.1
GERM 2Y	208.2	203.4	-4.8
GERM 10Y	284.1	275.4	-8.7
JPN 20Y	312.3	304.8	-7.5
CHINA 10Y	180.6	178.3	-2.3
SOFR H6/H7	-47.0	-62.5	-15.5
SOFR H7/H8	18.5	13.0	-5.5
SOFR H8/H9	22.5	22.0	-0.5
EUR	118.15	118.69	0.54
CRUDE (CLJ6)	63.36	62.75	-0.61
SPX	6932.30	6836.17	-96.13	-1.4%
VIX	17.76	20.60	2.84
MOVE	63.62	70.10	6.48

• ABOUT:
  Former member of the CME specializing in interest rate options and yield curve strategies.

  The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.