US Rates Strategy Mid-Year Outlook

Research evidence excerpt

US Rates Strategy Mid-Year Outlook

Global Research

27 June 2026ab

US Rates Strategy Interest Rates

AmericasMid-Year Outlook

Phoebe White

Strategist

In our forecast, the Fed remains on hold through year-end before easing in '27 phoebe.white@ubs.com

+1-212-713 2130

UBS economists project an unemployment rate at 4.5% at year-end, with core PCE

inflation running 2.0% saar over the final six months of the year. Softer labor market Reinout De Bock

Strategistand inflation data should drive front-end yields lower in coming months.

reinout.de-bock@ubs.com

+44-20-7567 0152

Treasury yields appear too high relative to our fair value framework

Mustafa Oguz Caylan

In addition to bullish support from a dovish move in near-term policy expectations and

declining oil prices, some reversion toward fair value should contribute to the decline in mustafa.caylan@ubs.com

yields over coming quarters. +44-20-7901 5203

Increases to Treasury coupon auction sizes are unlikely before February 2027.

We project $4.395tn of gross coupon issuance in the current calendar year, leaving net

coupon issuance running $1.493tn, close to last year's pace.

We project 2-year yields at 3.95% by year-end, with 10-year yields at 4.35%

Risks around this forecast are two-sided. Growth and hiring could broaden out beyond

tech in a more structural way, or a slowdown in hiring combined with a more significant

pullback by the consumer could drive the market to price in cuts faster. Nonetheless, we

see risks to yields as skewed to the downside over coming months.

Add 2s/10s curve steepeners

Long-duration positions at the front end and curve steepener exposure are set to be

profitable over 2H26. The 2s/10s curve appears too flat locally, offering relative value in

addition to positive carry.