For the end-of-bond-bull-market-crowd, 3% is a line in the sand. There is no inherent significance in that number, except that it’s a round one. The benchmark 10s as of now trade with regard to that level as if it’s a ceiling. That’s what makes it so momentous. In 2013, the yield finally broke 3% the day after Christmas, getting as high as 3.04% on New Year’s Eve. It hung around there until January 8, 2014, before finally declining back below 3% and remaining less to this day.

Back in 2010, though, 3% was meaningless. At that time, the level to beat was 4%, which the 10s did exactly once that year on April 5. The difference between 2010 and 2013 was the long end’s view of this possible ceiling.

Ceiling for what? It’s this part that I think so many get confused about in being confused over the yield curve. There’s two parts to it, the short as well as long end. The latter is an economic indication while the former is tuned by perceptions of money substitutes (including policy rates like IOER and RRP). It’s in the middle where those come together.

Eurodollar futures are nothing but short-end stuff. After all, they settle on 3-month LIBOR. But the various outer maturities of eurodollar futures have to take into considerations of not just money substitutes but also the possible future economic conditions that will drive them. It’s a mix of short and long attributes focused on how those will result in short-end mechanics.

What eurodollar futures show is the imposition of that ceiling on the short-end, confirming the long end’s reticence from 2013. It’s weird to see it now this many years later, but during reflation #2 that year the eurodollar futures curve was still closer to a normal one than not. It diverged significantly from the UST curve in that it was trading as if future LIBOR, driven by policy normalization due to a more complete economic recovery, was to be relatively unrestrained.