US Rates trade idea 30Y-5Y TIPS flattener

Research evidence excerpt

US Rates trade idea 30Y-5Y TIPS flattener

13 May 2026

US Rates trade idea FixedRates Income

30Y-5Y TIPS flattener United States

◆ Real yields have so far resisted the flattening move in nominals Dhiraj Narula, CFA

US Rates Strategist

◆ But the bond market’s growing skew towards pricing in rate HSBC Securities (USA) Inc.

dhiraj.narula@us.hsbc.com

hikes could see intermediate maturity TIPS underperform +1 212 525 0210

◆ Long-end real yields, in contrast, may stay contained given

valuations and lower near-term fiscal risks

Bear flattening led by nominals, TIPS could be next

The Treasury market’s broad move since the Middle East conflict began has been

one of bear flattening, driven predominantly by wider inflation breakevens in the belly

of the curve (Figure 1). Real yields, in contrast, have risen across maturities, leaving

the 30Y–5Y TIPS slope relatively rangebound even as nominal Treasuries have

flattened notably (Figure 2). We think this creates an asymmetry towards TIPS curve

flattening if markets continue shifting towards pricing a more restrictive Fed policy

regime; hence, we open a new 30Y–5Y TIPS flattener trade idea (Table 1).

Forwards increasingly shifting the policy base case

In recent months, market pricing has moved away from expecting further Federal

Reserve cuts and now implies around a 40% probability of a rate hike by end-2026

(Figure 3). Yet despite resilience in labour market data and growth alongside firmer

inflation, 5Y real rates have remained notably contained, sitting towards the lower

end of their one-year range (Figure 4). HSBC Economics projects no rate changes

from the Fed in 2026 or 2027 (see FOMC Multi-Asset Reaction, 29 April 2026). From

a forward-pricing perspective, however, we see scope for rates to find another leg