Widening the aperture: We see risks for today’s move to continue

Research evidence excerpt

Widening the aperture: We see risks for today’s move to continue

US Rates Strategy

17 June 2026 Citi Research

Widening the aperture

We see risks for today’s move to continue

Today, our medium-term bullish view on duration was challenged by half of the

FOMC members who signaled a possible rate hike in 2026, although we note that

no one dissented today in favor of a hike. Some of these same members guided to

easing in 2027 as well (Figure 1). At the presser, Chair Kevin Warsh did not push

back on the hawkish SEP, instead emphasizing that the era of forward guidance is

effectively over. He did discuss how the federal funds rate is unevenly restrictive: "If

I look at the housing markets as one example…Fed policy appears to be somewhat

restrictive. I would have a hard time managing to say those words if I were to see

what's happening in financial markets. I'd say it's uneven." Warsh also emphasized

that members put their “modal” outcome in the dot plot, but that was not

necessarily a high conviction view: "I think my colleagues around the table when

they submitted their dots understand the world is changing quite quickly."

We see risks for the front-end UST sell-off to continue in the short term, especially

with the lack of material data until June payrolls. Or in other words, the front-end

of the curve could be at risk of a larger “buyers’ strike” until the market sees

evidence of core inflation normalizing, which may take some time. We think the

best way to chase this move is via front-end flatteners in SOFR Z6/Z7, which

flattened 6.5bp today. We like fading the July hike pricing as a hedge to the trade,

effectively turning it into a mis-weighted fly. The idea is Z6/Z7 would materially

flatten if the Fed hikes at the July meeting, as presumably multiple hikes would be