Warsh-out
February 1, 2026 – Weekly comment
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In the midwest (Wisconsin), some people say “warsh” instead of “wash”, Well Friday was a wash-out in precious metals, but in honor of Eau Claire, WI and my sister-in-law Darla, we’ll call it a Warsh-out.
Precious metals were trounced. SIH6 down 35% from Thursday’s high print to Friday settle, and GCG6 down 15.6%. Bitcoin was also pressured, and is at a new low this Sunday morning (around 78.5k) with a current market cap of about $1.56T. Jensen Huang said Sunday in Taipei that NVDAs proposed $100 billion investment in OpenAI was “never a commitment” and that the company would consider any funding rounds “one at a time”. (BBG)
A friend sent this interesting X post about Warsh and his connections with Druckenmiller, Bessent and Alex Karp (CEO of Palantir).
https://x.com/Globalflows/status/2017313557298479399
The basic idea is that Warsh thinks inflation is driven by government (both the Fed’s balance sheet and excessive gov’t spending). He sees AI as leading to increased productivity. Gov’t waste (fraud) is a large contributor to inflationary forces. Palantir is, according to this article, “…the operational backbone of federal fraud detection. With 42% of its revenues from the US gov’t, Palantir is being deployed across agencies to address excessive fraud and surplus gov’t spending.” If both the balance sheet and fraud are brought under control then inflationary forces ease and rates can be brought down.
Given the emphasis in the above post on Palantir, it’s worth noting that PLTR earnings are released on Monday. Alphabet on Wednesday and AMZN and MSTR on Thursday.
The market’s initial reaction to the Warsh appointment is that a smaller Fed balance sheet means less support for risk assets and long-dated gov’t bonds. While TYH6 and USH6 both settled near the high of the week, the curve steepened with the 2y down 7.6 bps to 3.524% and 30y up 4.4 bps to 4.874%. So 2/30 ended at 135 bps, nearing the cycle high which occurred in early January at 140 bps. Last year’s low was on 7-Feb at 40 bps. At futures settle, I marked 2/10 cash spread at 71.7 bps, a new cycle high. Last year’s low in late Feb was 18 bps. High in 2/10 in the past five years is 158 in early 2021.
Strongest contracts on the SOFR strip were reds up around 10 bps on the week. The peak contract is SFRZ6, 9682.5, which was up 9 on the week. Note that the same relative contract (SFR5) had a high settle of 9705.5 on Oct 16, 2025 and 9710.5 on Sept 24, 2024, just after the first ease of the cycle. So the current level is one-quarter percent lower in price, even with 175 bps of ease.
What I would consider the largest risk facing markets is that the circular money flows endemic to big tech and big government will begin to slow significantly. That risk is NOT currently being reflected in MOVE index (ended at 59.20 in a twelve month range of 139.88 in April to 55.77 this past week), or in VIX, which ended 17.44 in a twelve month range 52.33 to 13.47.
News this week is capped by Payrolls, expected +68k from +50k last. JOLTS on Tuesday. ISM Mfg and Services Monday and Wednesday. ADP Wed.
Quarterly Borrowing Estimate Monday with QRA and auction composition on Wednesday.
OTHER THOUGHTS
Slight nod to increased odds of ease. SFRM6/U6 made a new recent low of -18 (9657.5/9675.5). On the week, it was down 2.5 bps. Low settle in this spread has been -18.5, set in July of last year. SFRH6/M6 settled -19 (9638.5/9657.5). Low settle last year in August was -27.5. Changes related to the Fed’s structure will take a while to play out.
| 1/23/2026 | 1/30/2026 | chg | ||
| UST 2Y | 360.0 | 352.4 | -7.6 | |
| UST 5Y | 383.5 | 379.7 | -3.8 | |
| UST 10Y | 423.5 | 424.1 | 0.6 | |
| UST 30Y | 483.0 | 487.4 | 4.4 | |
| GERM 2Y | 212.7 | 208.5 | -4.2 | |
| GERM 10Y | 290.5 | 284.2 | -6.3 | |
| JPN 20Y | 317.9 | 317.2 | -0.7 | |
| CHINA 10Y | 182.5 | 180.7 | -1.8 | |
| SOFR H6/H7 | -35.5 | -43.5 | -8.0 | |
| SOFR H7/H8 | 18.5 | 18.5 | 0.0 | |
| SOFR H8/H9 | 19.5 | 23.0 | 3.5 | |
| EUR | 118.28 | 118.51 | 0.23 | |
| CRUDE (CLH6) | 61.07 | 65.21 | 4.14 | |
| SPX | 6915.61 | 6939.03 | 23.42 | 0.3% |
| VIX | 16.09 | 17.44 | 1.35 | |
| MOVE | 56.25 | 59.20 | 2.95 | |
