BofA updates global rate forecasts to reflect a more hawkish Fed stance driven by US economic resilience. The report advocates for US front-end shorts and curve flatteners while favoring steepening positions in other G10 regions.
Key Takeaways
- 1.BofA expects the Federal Reserve to hike rates three times in 2H 2026, reversing previous insurance cuts.
- 2.Energy price shocks are significantly different from 2022, suggesting different inflation paths for the US vs. the rest of the world.
- 3.Trade preferences include paying US front-end rates and flattening 2s10s curves, with steepening positions outside the US.
Table of Contents
- Key 2H26 themes: energy, US resilience, hikes
- Forecast changes: world turned upside down
- Forecasts vs forwards: Fed hikes underpriced
- Curves: US flatter, RoW steeper
- Volatility: more idiosyncratic as geopolitical risks fade
- Trades: pay US front end, fade US outperformance vs RoW
- Core views, trades and forecasts
- US: world turned upside down
- EU: marginal adjustments
- UK: shifting narratives
- AU: close to an inflection point
- JP: curve under pressure
- CA: range bound
- Front end – US
- Inflation – US
- Inflation – UK
- Spreads – EU
- Volatility – US
- Volatility – EU
- Volatility – AU
- Volatility – JP
- Rates Alpha trade recommendations
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Authors
Ralf PreusserMark CabanaSphia Salim
Securities
2Y Treasury10Y Bund10Y Gilt10y JGB
Themes
Energy Market NormalizationHawkish Central Bank PivotsUS Economic Resilience
Regions
North AmericaEuropeAsia PacificUnited StatesGermanyUK