U.S. Fixed Income Markets Weekly

Research evidence excerpt

U.S. Fixed Income Markets Weekly

- and 10-year yields will rise to 4.20% and 4.70%,

respectively, at YE26. Stay short 10-year Treasuries versus Bunds, and enter 10s/30s

Treasury curve flatteners, as a soft-bearish trade with relative value. Given large

funding gaps emerging in FY27 and beyond, we expect Treasury to remove the “at

least” from its forward guidance in August, to prepare for a multi-quarter series of

coupon increases commencing in February 2027. The administration's focus on

lowering long-end yields increases risks this forward guidance change may be

delayed, potentially pushing coupon increases later into 2027. We adjust lower our

projections for foreign demand for Treasuries, as well as our bank demand

forecast.We project higher breakevens by YE26: maintain 5-year wideners.

Contents

Interest Rate Derivatives I. Ozil, C. Hayward, E. Alptuna Summary of Views 3

Swap yield curves have bear flattened across forwards, driven mostly by hawkish US Fixed Income Overview 4

repricing of short- and medium-term Fed expectations. Our projections point to yield Economics 18

curves staying near current levels, consistent with 6M forward pricing. Regarding Treasuries 22

Technical Analysis 34

swap spreads, we refresh our term funding premium and zero-duration spread models. TIPS Strategy 45

We find TFP is still modestly elevated compared to fair value. We expect spreads to Interest Rate Derivatives 54

widen slightly by year end. On vol: we expect implieds to decrease in the upper left, Short-Term Fixed Income 75

and increase in the longer expiries, particularly in belly tails in 2H26. We present a US Agencies and $-SSAs 81

brief analysis of presidential social media on intraday yield volatility. We show that Agency MBS 88