Rates are still the “market of markets.” When the price of money changes, everything downstream—credit conditions, refinancing cycles, housing affordability, and risk budgets—re-anchors. Axel Fabela Iturbe frames the current environment as a transition phase: policy is no longer in emergency-tightening mode, but it is not yet in a clean easing cycle either. That in-between regime is where curve shape and data surprises tend to matter more than narratives.
The new baseline: policy no longer “far from neutral”
The Federal Reserve’s December decision lowered the target range to 3.50%–3.75%, and the Fed’s own communication acknowledged elevated uncertainty while still emphasizing the dual mandate.
Axel’s read is less about the cut itself and more about what it implies: the “speed” of easing is now the debate, not the direction. He points to recent Fed messaging that policy is closer to neutral and “well positioned” to balance a cooling labor market against inflation that is easing only gradually.
Today’s CPI is the nearest volatility catalyst
In rates, the calendar matters. The BLS scheduled the release of December 2025 CPI for January 13, 2026 at 8:30 a.m. ET—a print that can reset front-end expectations quickly if it deviates from consensus.
Ahead of the release, major market coverage has focused on whether core inflation re-accelerates after recent data quirks, and whether that would cool expectations for further cuts.
Axel’s framing: CPI days are less about “being right on inflation” and more about managing convexity and stop discipline—because intraday repricing can be fast, especially when positioning is crowded.
Curve shape: the story is shifting from inversion to term premium
One structural change Axel highlights is how the curve itself is behaving. The 10-year minus 2-year spread has turned positive (around +0.6 percentage points in recent readings)—a meaningful contrast from the deep inversion regime that dominated prior macro phases.
In his view, once inversion fades, the market’s attention tends to migrate:
- From “recession signal vs. not” arguments
- Toward term premium, issuance absorption, and the credibility of a “soft landing” path
That does not mean volatility disappears. It means the transmission mechanism changes: longer maturities can start to move on supply and inflation risk, not just short-rate expectations.
Cross-Atlantic contrast: Europe’s pause looks cleaner
Axel also watches the policy divergence without leaning on currency calls. The ECB’s December 18, 2025 decision kept key rates unchanged, including a 2.00% deposit facility rate.
For rates traders, that matters because “pause vs. cut” isn’t just semantics—it influences forward curves, swap spreads, and relative-value trades across developed markets.
How Axel’s background shows up in the process
Axel Fabela Iturbe’s approach is shaped by a career built around trend work and risk control—starting with formal training (a finance master’s at the University of Chicago) and early professional experience in the U.S. at Morgan Stanley, where he focused on market trend analysis, portfolio decisions, and risk assessment before later specializing in broader international and emerging-market themes.
He’s known for combining two ideas:
- “Smart Trend Control” (his trend-first framework for identifying when a move is real vs. noise)
- A quant-style capital allocation routine (“quant capital system”) that formalizes sizing, exposure caps, and drawdown discipline
In this rates setup, that translates into a simple rule: don’t argue with price, but don’t let price argue with your risk limits either.
A practical signal map for the next few weeks
Axel’s “signal map” for rates is built around three clusters—chosen because they frequently move curves even when the macro story feels unchanged:
1) Inflation persistence vs. normalization
- Core services behavior and shelter-related components
- Revisions and “one-off” distortions that can reverse
2) Labor cooling without a break
- Evidence of slower hiring or weaker job switching (without assuming a recession)
- The market’s tendency to overreact to a single print, then mean-revert
3) Supply, liquidity, and the plumbing
- Auction reception, dealer balance sheet capacity
- Any messaging around balance sheet policy and liquidity conditions
His edge is not claiming certainty. It’s treating uncertainty as a variable you can manage: widen bands on event days, predefine invalidation points, and size so you can stay in the trade long enough for the thesis to play out.
Three scenarios the curve can price—without needing dramatic news
Axel often uses scenario bands rather than single-point forecasts:
Scenario A: Sticky inflation, slower easing
If CPI or subsequent inflation prints surprise higher, the market can price fewer cuts and push front-end yields up quickly. The curve may steepen or flatten depending on whether the long end believes inflation risk is returning or growth risk is rising.
Scenario B: Disinflation resumes, “hold then cut” remains intact
If CPI aligns with expectations and follow-through data confirms cooling pressures, the market can keep a gradual easing path while volatility compresses. In that regime, carry and roll-down strategies often regain appeal—but only if risk is contained.
Scenario C: Growth re-accelerates, term premium rises
Even without inflation re-accelerating, stronger growth can lift long-end yields via term premium and issuance absorption concerns. This is where “rates up” doesn’t necessarily mean “policy tighter”—it can simply mean “duration demands a higher price.”
What he’s watching next
Axel’s near-term checklist is deliberately boring—because boring inputs often produce violent curve moves:
- Today’s CPI and how the market behaves after the first 30 minutes
- Fed communication that clarifies “pause” vs. “more cuts”
- Auction outcomes and any signs of digestion stress
- Whether the curve’s positive slope persists or snaps back
His bottom line: when policy is near neutral and data is noisy, process beats prediction—trend identification plus capital discipline is how a rates view survives real-world volatility.
