Diffusion CapitalDiffusion Capital

Monitor

Monetary policy, government finances and bond markets.

Policy rates and liquidity, government budgets and borrowing, and bond-market pricing across the US, Europe and Asia. Data from central banks, the IMF, the US Treasury, the OECD and the BIS.

Latest reading: 2 November 2026

Monetary policy and liquidity

Policy rates, financial conditions and the inflation pressure on the Fed and the ECB, and how fast the ECB is shrinking its balance sheet.

Fed target range

The federal funds rate the Fed aims for

3.75–4.00%

+0.25 pp last move, 17 September 2026

2 November 2026Source: Federal Reserve

US financial conditions

Chicago Fed: above zero is tighter than average, below zero looser

−0.49

+0.03 vs a year ago

Week to Oct 23Source: Chicago Fed

ECB policy rate

The rate the European Central Bank pays on bank deposits

2.50%

+0.25 pp last move, 16 September 2026

27 October 2026Source: BIS

ECB balance sheet

Eurosystem total assets, in € billions

€5,935bn

−4.2% vs a year ago

Week to Oct 23Source: ECB

The Fed’s inflation dilemma

Select a factor to see its cause, price effect and the Fed’s limit.

Select a factor.

Pressure on the Fed’s dilemma: 95/100. Our analyst assessment. The dominant current supply shock raises costs across the economy. Rates cannot restore energy flows; restraining demand adds to the growth cost.Pressure on the Fed’s dilemma: 60/100. Our analyst assessment. Substantial investment demand strains capacity. Cash flow, fixed-rate funding and strategic commitments limit the immediate rate response, shifting adjustment onto other activity.Pressure on the Fed’s dilemma: 40/100. Our analyst assessment. Tariffs remain a policy risk and keep prices higher. Their fading contribution to annual goods inflation makes them less dominant than the energy shock.Pressure on the Fed’s dilemma: 20/100. Our analyst assessment. Tax relief and procurement support demand. Rates can counter it by restraining private spending; this is a weaker constraint than physical supply disruptions.Pressure on the Fed’s dilemma: 30/100. Our analyst assessment. Housing bears much of tight policy’s cost. Supply constraints and shifts into renting complicate disinflation, although housing activity still responds to rates.Pressure on the Fed’s dilemma: 70/100. Our analyst assessment. A major labour-supply constraint lowers the hiring pace needed for stable unemployment. Exposed sectors face higher costs; weaker demand makes net inflation uncertain.

Pressure on the Fed’s dilemma · 0–100

95/100Our analyst assessment

The dominant current supply shock raises costs across the economy. Rates cannot restore energy flows; restraining demand adds to the growth cost.

0 negligible · 50 substantial · 100 dominant

Scores reviewed 30 October 2026

Federal Reserve · Target range3.75–4.00%As of 2 November 2026

Selected factor

Energy disruption

+20.4%Sep 2026

Energy CPI · 12-month change · seasonally adjusted

  1. Cause

    The Iran war disrupted Hormuz and Bab al-Mandab, restricting or rerouting Gulf oil and LNG shipments.

  2. Price effect

    Reduced energy supply and costlier shipping raise fuel, freight and insurance costs, which feed into goods and service prices.

  3. Fed’s limit

    Higher rates restrain demand but cannot reopen the straits. Restoring energy flows requires security and diplomatic action.

Rates still affect the dollar and financial prices, but cannot repair the physical disruption to energy supplies.

Evidence reviewed 30 October 2026

Central-bank policy rates

Effective policy settings since January 2021

Select a central bank

Policy rate, %

Use the arrow keys to inspect policy settings; Escape closes the readout.

−1%0%2%4%6%2021202220232024202520263.875%3.75%2.5%1.25%

US: target midpoint. ECB: refinancing rate before 18 Sep 2024, deposit rate thereafter. China: one-year loan prime rate.

Source: BIS ↗

US financial conditions

Chicago Fed NFCI · weekly data since 2021 · through 23 October 2026

NFCIRiskCreditLeverage

Index; zero = historical average

Use the arrow keys to inspect weekly financial conditions; Escape closes the readout.

−0.8−0.6−0.4−0.20.00.2−0.49202120222023202420252026

Above zero means tighter than average. Shading shows published group contributions; these differ slightly from the overall NFCI line.

Source: Chicago Fed ↗

The ECB's balance sheet keeps shrinking

Eurosystem assets, € billion, weekly · through 23 October 2026

Total assetsOther assetsLending to banksPolicy bond holdings

€bn

Use the left and right arrow keys to inspect weeks. Press Escape to close the readout.

02,0004,0006,0008,00010,0005,9352,599363,301202120222023202420252026

Banks have repaid almost all their cheap long-term ECB loans, and bond holdings fall as bonds mature. Other assets are total assets minus the two items shown.

Source: ECB ↗

Energy pushes euro-area inflation up

Consumer prices, % change on a year earlier, monthly · through Sep 2026

All itemsServicesCoreEnergyECB target 2%

Annual change, %

Use the left and right arrow keys to inspect months. Press Escape to close the readout.

0%5%10%15%↑ 44.3%↓ −11.5%↑ 18.9%3.8%3.2%2.5%202120222023202420252026

Energy prices are rising fast, but core inflation (without energy and food) has barely moved. Energy, the faint line, runs off the scale; hover to see its values.

Source: ECB ↗

What markets expect

Government finances and borrowing

Who holds US government debt, when it comes due, whether faster growth alone could stop the debt ratio rising, how major economies raise and spend money, and how deficits and debt compare across countries.

US debt held by the public

Federal debt held outside the government, daily

$32.71T

+$2.22T vs a year ago

29 October 2026Source: US Treasury

US average rate paid

Average interest rate on all interest-bearing federal debt

3.53%

+0.17 pp vs a year ago

Sep 2026Source: US Treasury

US debt due within a year

Share of tradable Treasury debt maturing in the next 12 months

33.4%

+0.7 pp vs a year ago

Sep 2026Source: US Treasury

EU government debt

Gross government debt of the 27 EU countries, % of GDP, quarterly

82.9%

+1.5 pp vs a year ago

Q2 2026Source: Eurostat

Who owns US government debt

Trillions of dollars by holder, quarterly since 2010; holders through Q1 2026, total through 28 October 2026

TotalPrivate holders (not yet split)Click a group to show only it

$ trillion

Use the left and right arrow keys to read each quarter.

010203040$40.6T$6.8T$5.1T$1.6T$1.9T$2.2T$9.4T$12.0T2011201220132014201520162017201820192020202120222023202420252026

Government accounts and foreign holders own a shrinking share. Mutual funds and other investors gained the most.

Source: US Treasury ↗

US government debt coming due

Tradable Treasury debt by year of maturity, 30 September 2026

BillsNotesBondsInflation-protectedFloating-rate

Due, $ trillion

$0T$2T$4T$6T202620272028202920302031203220332034203520362037+

Bills mature within a year, notes in 2 to 10 years and bonds in 20 or 30 years. The first bar shows the rest of 2026; the last bar shows all later years.

Source: US Treasury ↗

The cost of US government borrowing

Average rate on federal debt and the 10-year yield, monthly since 2001

Average rate paid10-year yieldYield higherYield lower

Percent

Use the left and right arrow keys to inspect months. Press Escape to close the readout.

0%2%4%6%8%20022004200620082010201220142016201820202022202420264.99%3.53%

When the 10-year yield is above the average rate paid, new debt costs more than the debt it replaces, so the average rate tends to rise. Shading marks the gap.

Source: US Treasury ↗ · Source: FRED ↗

Can the US grow out of its debt?

US debt held by the public, % of GDP, at different growth rates

CBO forecast, 1.8% growthLast decade's pace, 2.5%Bessent's 3%AI scenariosRange around Bessent's 3%Today's debt ratio

Debt held by the public, % of GDP

Use the left and right arrow keys to step through the years.

40%60%80%100%120%140%20262027202820292030203120322033203420352036Debt shrinking relative to GDPCBO 120%AI modest 117%Last decade 110%Bessent 3% 102%AI substantial 89%AI extreme 53%

Our calculation on CBO's February 2026 forecast, changing only growth: faster growth brings more tax and slightly higher rates. Band: other assumptions. Dashed: Anthropic's AI scenarios.

Source: CBO ↗ · Source: BEA via FRED ↗ · Source: Our AI note ↗

Growth against the interest rate on US debt

Nominal GDP growth and average rate on federal debt, 1963–2036

Nominal GDP growthAverage rate on debtRate above growthCBO projection

% a year

Use the left and right arrow keys to step through the years.

−5%0%5%10%15%1966197119761981198619911996200120062011201620212026203120364.0%3.8%

When the rate is above growth, debt rises faster than GDP unless the budget before interest is in surplus. CBO expects that from 2031. Dashed: CBO's February 2026 baseline.

Source: CBO ↗

How governments raise and spend money

All levels of government, 2024, share of total

Click a category to sort

% of total

Use the arrow keys to move between countries and categories. Press Escape to close the readout.

0%20%40%60%80%100%United States33%21%21%18%China12%26%35%22%United Kingdom26%8%20%30%16%France18%32%30%14%Italy27%27%30%11%Spain22%31%26%14%Germany20%37%22%14%South Korea17%28%27%20%Canada41%14%18%26%Japan12%13%35%23%16%IndiaTotals only: see % of GDP

Countries ordered by deficit; click a category to sort. Bars use IMF totals, so hover values can differ slightly. In US data, property taxes count as goods and services.

Source: Eurostat ↗ · Source: OECD ↗ · Source: IMF ↗

Deficits and net interest

All levels of government · IMF projections for 2026, October 2026

Primary deficitNet interestOverall deficit

Deficit and net interest, % of GDP

0%2%4%6%8%10%United States8.5%Germany4.3%France5.4%Italy2.9%United Kingdom3.8%Japan1.4%China8.0%India7.5%South Korea1.3%Canada2.5%

The primary deficit leaves out interest; add net interest for the overall deficit. Values below zero are surpluses or net interest income. India uses fiscal years.

Source: IMF ↗

Government debt projections

Gross debt, all levels of government · IMF, October 2026

2026 projection2031 projection

Gross debt, % of GDP

0%50%100%150%200%145%US76%DE124%FR136%IT100%UK189%JP122%CN75%IN50%KR107%CA

Both years come from the same IMF report. Debt includes social security funds where a country has them. India uses fiscal years.

Source: IMF ↗

What markets expect

Read our related note

Bond Market

Why the 10-year Treasury yield rose, how big hedge funds' leveraged bet on Treasuries has become, 30-year yields in the US, the UK and Europe, how Big Tech now funds its build-out with debt, and whether Treasuries still protect a share portfolio.

2-year Treasury yield

Daily, constant maturity

4.61%

+1.02 pp vs a year ago

29 October 2026Source: US Treasury

10-year Treasury yield

Daily, constant maturity

4.98%

+0.90 pp vs a year ago

29 October 2026Source: US Treasury

30-year Treasury yield

Daily, constant maturity

5.32%

+0.71 pp vs a year ago

29 October 2026Source: US Treasury

What drives the 10-year yield: the Fed or the risk premium?

10-year yield split into expected Fed rates and the term premium · weekly, latest 23 October 2026

10-year yield (model)Expected Fed ratesTerm premium above zeroTerm premium below zero

Percent

0%2%4%6%200620082010201220142016201820202022202420265.00%0.94%4.06%

A Fed model splits the 10-year yield into expected Fed rates and the term premium, the extra pay for holding a long bond. Since 26 December 2025, the model’s 10-year yield moved +79 bp: +41 bp from expected Fed rates and +38 bp from the term premium.

Source: Fed Board ↗

Hedge funds' borrowed bet on Treasuries

Q2 2026: hedge funds hold 7.6% of Treasuries, record $3.38tn of repo

Treasury holdingsRepo borrowing

% of all marketable Treasuries

Use the left and right arrow keys to inspect quarters. Press Escape to close the readout.

0%5%10%15%20132014201520162017201820192020202120222023202420252026Dash for cashSwap-spread unwindRelative-value leverage15x40x23.3x10.9%$3.38tn7.6%$2.36tn

The 50 largest funds hold 90% of hedge funds' Treasury exposure (Sep 2025)

Repo is a short loan backed by bonds. Hedge funds have doubled their Treasuries since late 2022, at about 23x leverage. A forced sale now means about $2.4tn, against $1.3tn in 2020.

Source: OFR ↗ · Source: US Treasury ↗ · Source: Fed Board ↗

Do Treasuries still protect a share portfolio?

S&P 500 vs 10-year Treasuries, one-year correlation · to 29 October 2026

One-year correlation95% range

Correlation

Use the left and right arrow keys to inspect months. Press Escape to close the readout.

Since 2022−1−0.500.51↑ Bonds fell with shares↓ Bonds rose when shares fell1992199419961998200020022004200620082010201220142016201820202022202420260.32

S&P 500 falls of 5% or more in which the 10-year yield fell

1990–2021
69% of 106
2022–2026
13% of 16

Fisher's exact test: p < 0.001

Below zero, Treasuries rose when shares fell, so they cushioned a portfolio. The band is the 95% range. A sell-off is a fall of 5% or more from a closing high.

Source: FMP ↗ · Source: FRED ↗

Big Tech now borrows to build

Quarterly bonds and loans of six AI builders, estimated to end-2027

MicrosoftAmazonAlphabetMetaOracleSpaceXProject bondsLoansEstimate

US$ billion per quarter

Use the left and right arrow keys to inspect quarters. Press Escape to close the readout.

050100150114Q12026102Q272Q3≈3225Q4so far≈101Q12027≈80Q2≈81Q3≈59Q4

Actuals: SEC filings and deal reports. Estimate: the six firms’ share of AI debt so far, applied to SemiAnalysis’s yearly total: $321bn in 2027. Line: banks’ 2027 range for five firms, $220bn to $420bn. Loans not projected.

Source: SEC filings ↗ · Source: SemiAnalysis ↗ · Source: JPMorgan ↗ · Source: Goldman Sachs ↗ · Source: SIFMA ↗

30-year bond yields: US, UK and Europe

30-year yields, weekly since 2006 · to 29 October 2026

United StatesUnited KingdomGermany (Bund)Euro area

Percent

Use the left and right arrow keys to inspect weeks. Press Escape to close the readout.

−2%0%2%4%6%8%20082010201220142016201820202022202420265.70%5.32%4.38%3.69%

Weekly closes. The euro area line covers all euro governments, so it sits above the Bund. The UK line (from 2016) is the Bank of England's fitted rate, within about 0.1 points of the gilt.

Source: US Treasury ↗ · Source: Bank of England ↗ · Source: Bundesbank ↗ · Source: ECB ↗

What markets expect

European Bond Market

What pushed euro yields up in 2026: the energy shock and the ECB's hikes, then France's politics. Inflation driven by energy, and France's extra yield over Germany.

Germany, 10-year yield

Monthly average government-bond yield, in euros

3.47%

+0.78 pp vs a year ago

Sep 2026Source: OECD

France, 10-year yield

Monthly average government-bond yield, in euros

4.48%

+0.96 pp vs a year ago

Sep 2026Source: OECD

Italy, 10-year yield

Monthly average government-bond yield, in euros

3.99%

+0.45 pp vs a year ago

Last update Aug 2026Source: OECD

Spain, 10-year yield

Monthly average government-bond yield, in euros

3.92%

+0.66 pp vs a year ago

Sep 2026Source: OECD

What pushed euro yields up in 2026

Since 27 February 2026 the euro-area 10-year rose 0.91 points, the AAA 2-year 1.03 · daily, latest 29 October 2026

10-year euro average10-year AAA2-year AAA

Percent

1%2%3%4%5%Energy shockMore ECB hikesFranceMar 25May 25Jul 25Sep 25Nov 25Jan 26Mar 26May 26Jul 26Sep 264.01%3.37%3.01%

Energy shock: oil lifted expected ECB rates; the ECB hiked in June. Summer: all maturities rose, led by the 2-year; the ECB hiked again in September. France: from 23 September 2026 the euro average’s gap over AAA widened 0.17 points.

Source: ECB ↗

Energy drives inflation, and the ECB follows

September 2026: energy is 1.7 of 3.8 points of inflation; ECB rate 2.50%

EnergyOtherInflationCoreECB rate

% and percentage points

Use the left and right arrow keys to move through the months.

0%5%10%202220232024202520263.8%2.5%2.50%+1.7 pts

Columns split inflation into energy and the rest. Energy prices rose 18.9% in a year, and inflation doubled from 1.9% in February 2026.

Source: ECB ↗

France: politics in the price

France's extra yield tracks policy uncertainty: correlation 0.69 since 2017

FranceItalyUncertainty index, France

Extra yield over German 10-year bonds, points

Use the left and right arrow keys to step through the months; press Escape to close the readout.

00.511.522010–19 average: 2532023202420252026DissolutionBarnier fallsBayrou falls3830.970.89

Extra yield over Germany on 10-year bonds; September 2026: France 0.97 points. Shaded: France's policy uncertainty index, from newspaper counts; dashed: its 2010–19 average.

Source: ECB ↗ · Source: Baker, Bloom, Davis ↗

Figures are shown as published by the named source and are revised by their publishers. This page is for information only and is not investment advice or a recommendation to buy or sell any security. This dashboard is maintained and updated with the help of AI. Errors can occur; we apologise for any.