Markets are humbling: United States: Inflation Markets

Research evidence excerpt

Markets are humbling: United States: Inflation Markets

FICC Research

Interest Rates

18 June 2026

United States: Inflation Markets

Markets are humbling

We continue to recommend shorts in 1y1y BEs following the

hawkish June FOMC meeting and the MoU for the Iran war.

Carry has pushed outright 1y BEs sharply lower, as expected. Jonathan Hill, CFA +1 212 526 3497

Fertilizer prices are now lower than when the Iran war jonathan.hill@barclays.com

started. In RV, we recommend a front-end iota widener. BCI, US

Apostolos Apostolou

+1 212 526 5051

There is a lot to cover this week in US inflation markets, and we address a few key topics: apostolos.apostolou@barclays.com

BCI, US

•• The hawkish June FOMC, and how we are thinking about positioning trades in response.

•• The not-so-surprising sharp outright drop in 1y breakevens, why this was well-expected

given the mechanics behind carry and pricing NSA breakevens, and where the market is

priced through the end of July.

•• Food inflation in the context of fertilizer prices, which are now actually lower than before

the Iran war started.

•• In relative value, we initiate a front-end iota widener.

More hawk than dove

The June FOMC should reduce inflation risk premium

Taken in totality, the June FOMC was unambiguously hawkish versus Barclays' and the market's

expectations, resulting in a textbook repricing: higher real yields, lower breakevens, flatter

curve (Warsh Fed: Into the unknown, Juine 17, 2026). Following the meeting, we unwound our

our long 5y real yields position, having initially recommended the trade back in January. P&L on

the trade had swung notably in recent months from near-target to near-stop, and at that point

we did not see a favorable risk/reward to continuing to hold the position, even with the bullish