Global Markets Strategy Derivatives

Research evidence excerpt

Global Markets Strategy Derivatives

ld switch, resulting in duration changes and

rebalancing needs. To position for higher yields, we recommend buying the factor-

weighted USZ6 basis, which could widen further in a selloff

Phish goes, the Fed doesn’t

Wednesday’s FOMC meeting rocked markets, much like Phish rocked crowds at MSG dur-

ing their 5-night run, but for quite different reasons. The FOMC voted 9-3 to stay on hold,

the consensus expectation, and the statement was almost unchanged relative to June. The

press conference turned out to be the most impactful component for markets. Warsh’s failure

to specify how he will control inflation and his indication that PCE may not remain the Fed’s

preferred measure of inflation both raise questions about his inflation-fighting credibility

(That’s incredible!, M. Feroli, 7/29/2026). Consequently, our economists think that the rest

of the committee will feel greater urgency to act and have pulled forward their forecast for

the next rate hike from 2H27 to December of this year. Post meeting on Wednesday, long-

end yields rose 12bp, and 2s30s increased 15bp. Warsh’s remarks about considering alter-

nate measures of inflation, which suggest downside risk to his policy rate bias, could explain

the resulting Treasury curve twist steepening, TIPS breakevens widening, and dollar weak-

ening (US Treasury Market Daily: Talk is cheap, J. Barry, 7/29/2026). Implieds also had a

large intraday move on Wednesday, first increasing amidst news about the Middle East con-

flict and then declining in the upper left. Yesterday, front-end yields fell and the broad curve

steepened on the back of softer data (US: Final sales rush ahead of overall GDP in 2Q (GDP,

PCE), A. Reinhart, 7/30/2026; US: Jobless claims again have favorable jobs signal, A.