US Rates Strategy: Take profits on 2s/10s steepeners, receive 3Yx4Y swaps

Research evidence excerpt

US Rates Strategy: Take profits on 2s/10s steepeners, receive 3Yx4Y swaps

Global Research

10 July 2026ab

US Rates Strategy Interest Rates

AmericasTake profits on 2s/10s steepeners, receive 3Yx4Y

swaps Phoebe White

Strategist

phoebe.white@ubs.com

+1-212-713 2130

The Fed announced leadership of its five task forces. Reinout De Bock

Appointees to the Communications task force are skeptics of forward guidance, though Strategist

leadership of the Balance Sheet task force appears to be set up to generate genuine reinout.de-bock@ubs.com

+44-20-7567 0152

debate. Those selected for the Inflation Frameworks task force lean toward humility

about fine-tuning. The Data and Productivity panels bring private-sector, real-time, and Mustafa Oguz Caylan

AI-frontier perspectives. Strategist

mustafa.caylan@ubs.com

+44-20-7901 5203

Tactically take profits on 2s/10s steepeners. Receive 3Yx4Y swaps.

Despite our below-consensus CPI forecast, markets will likely be focused on

PCE implications, suggesting limited room for a significant front-end rally near term. The

re-escalation of geopolitical tensions and higher energy prices also pose a risk to front-

end longs. Lastly, the aggressive bear steepening of the curve the last two weeks could

allow for near-term mean reversion. Tactically take profits on 2s/10s steepeners. Receive

3Yx4Y swaps for better risk/reward.

Softer CPI risks front-end inflation underperformance, but hold longs in 5Y RYs.

We estimate the market implies a 0.27% increase in core CPI, 6bp above our own

forecast. Beyond June, we estimate the fixings market is priced for core CPI to average

0.25% m/m over the next six months. At current levels, 5- and 10-year breakevens (on a

forward basis) have already moved somewhat above our year-end targets. But