What Changed?
The Fed has formally moved from talking about cuts to delivering them. On December 10, the FOMC lowered the target range for the federal funds rate by 25 basis points to 3½–3¾%, citing a moderate expansion, softer job gains, and inflation that “remains somewhat elevated.” The implementation note directs the New York Fed’s desk to maintain that range and trims the interest rate on reserve balances to 3.65%.
At the same time, the yield curve no longer looks like the extreme inversion of 2023. On December 10, the 5-year Treasury constant maturity yield stood at 3.72%, the 10-year at 4.13%, and the effective fed funds rate at 3.89%—a modest positive term premium instead of cash dominating the curve. Ten-year TIPS yielded 1.88%, implying roughly a 2¼% breakeven inflation rate over the coming decade.
Flows have adjusted. EPFR reports that by the week ending November 19, year-to-date flows into bond funds reached $820 billion, pushing past 2024’s record, with U.S. bond funds drawing over $10 billion for the third straight week. This is not money hiding in T-bills—it is re-engaging fixed income while yields remain comparatively attractive.
A “slow-money portfolio” is emerging: investors are extending duration, but mainly into the 3- to 10-year part of the curve, not making an all-in bet on 30-year bonds. They’re trying to lock in mid-single-digit nominal yields and 1½–2%+ real yields while the Fed’s easing path remains gradual rather than aggressive.
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The Numbers
Policy stance: The FOMC cut the target range for the federal funds rate to 3½–3¾% on December 10, and the Fed now pays 3.65% on reserve balances.
Curve snapshot: On December 10, the effective fed funds rate was 3.89%, the 5-year Treasury yield 3.72%, and the 10-year 4.13%, with the 30-year at 4.78%.
Real yields and inflation expectations: Ten-year TIPS yielded 1.88% on the same date, implying market-based inflation expectations just above 2% per year over 10 years.
Bond flows: EPFR’s November-week data show bond-fund inflows reaching “record-setting territory,” with year-to-date flows of $820 billion into all bond funds and continuing strength in U.S. bond funds.
Duration positioning: Reuters reports that some managers remain modestly overweight duration but have reduced long-end exposure, concentrating overweights in intermediate maturities such as five-year Treasuries, while others keep duration only slightly above neutral and focus on the front and intermediate sectors.
Why It Matters
The Fed’s own September projections show the median “appropriate” federal funds rate drifting only gradually lower—3.6% in 2025, 3.4% in 2026, and 3.1% in 2027, settling near 3.0% in the longer run. That path argues against a replay of the post-GFC era of near-zero rates and enormous duration windfalls.
Instead, the opportunity is in measured extension. With the 10-year Treasury around 4.1% and 10-year TIPS near 1.9%, investors can earn a small but positive real yield without leaning heavily on the 20- and 30-year points where fiscal worries and term-premium volatility are concentrated. EPFR’s numbers confirm that bond allocations are growing again, and Reuters’ survey of portfolio managers shows that much of the added duration risk is being taken in the belly of the curve, not the extremes.
For portfolios, that translates into a slow-money design: shift incrementally out of pure cash and ultra-short strategies into intermediate Treasuries and high-quality credit, accepting some price volatility in exchange for term premium and real yield, while retaining flexibility if the Fed stops cutting earlier than markets once hoped.
Takeaway
Duration is coming back, but quietly and selectively. The investors setting today’s tone are not betting on a dramatic collapse in long-term yields—they’re building portfolios that can live with a 3–4% policy world and still earn real income. That is the essence of the slow-money portfolio: extend a little, get paid for patience, and let the cycle work in your favor without needing a heroic pivot from the Fed.
— Lauren Brown
Editor, American Ledger
Sources
Federal Reserve Board, December 2025 https://www.federalreserve.gov/newsevents/pressreleases/monetary20251210a.htm
Federal Reserve Board, December 2025 https://www.federalreserve.gov/newsevents/pressreleases/monetary20251210a1.htm
Federal Reserve Board, December 2025 https://www.federalreserve.gov/releases/h15/
EPFR, December 2025 https://epfr.com/insights/global-navigator/investors-hold-their-course-during-third-week-november/
Federal Reserve Board, September 2025 https://www.federalreserve.gov/monetarypolicy/fomcprojtabl20250917.htm