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[MARKET ANALYSIS] USTs consolidate following hawkish rate decision, Bunds muted as ECB awaits

The hawkish tone from the FOMC, despite maintaining the current rate, indicates a possible tightening of policy moving forward, especially with a notable dissent on easing measures.

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[MARKET ANALYSIS] USTs consolidate following hawkish rate decision, Bunds muted as ECB awaits

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  • UST Futures consolidate in a tight 4 tick range, after the hawkish FOMC rate decision pushed benchmarks lower. The FOMC held rates steady at 3.50-3.75%, however voted 8-4 (Miran voted for 25bp cut while Hammack, Kashkari and Logan dissented on the easing bias within the statement.) The statement also tilted hawkish, with the language around inflation changed to “elevated” from “remains somewhat elevated.” Market pricing indicates rates to stay on hold in 2026, with a 56% chance of a hike by Apr’27. 
  • Bund Futures are muted ahead of the ECB policy announcement. It is widely expected for the GC to keep rates steady at 2.0%, with markets pricing in a 99% chance of a hold. 
  • JGB Futures gapped lower and currently underperforms its peers, as it had to play catch-up due to the holiday closure. 10-year JGBs found support at 129.17 and currently trades off worst levels. 
Context

This shift may impact market expectations for the Fed's rate path and could lead to further UST weakness as traders adjust their positions. Meanwhile, the muted reaction in Bunds suggests market participants are taking a cautious stance ahead of the ECB's own policy decisions, which are expected to remain unchanged for now.

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