November 23, 2025 09:57 PM GMT 2026 Global Macro Strategy Outlook A Tale of Two Halves with More Than Two Paths We expect the trends that began in 2025 – lower G10 rates and a weaker US dollar – will continue into the first half of 2026. These trends should weaken mid-year and then reverse into the US midterm elections in November 2026. Maintain long government bond positions and stay short USD for now. Key Takeaways Interest Rate Strategy In the US, we expect Treasury yields to trade in a lower range in 20 ...

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the **US Rates Strategy** within the **North American** financial market, particularly regarding the **SOFR (Secured Overnight Financing Rate) swaptions market** and its implications for investors. Core Insights and Arguments - **Investor Sentiment**: Investors appear complacent regarding tariffs and their potential impact on inflation and the labor market, as indicated by the SOFR swaptions market [10][11][21] - **Probability Analysis**: - There is a **76% probability** that 2-year term SOFR rates will remain within a **100 basis points (bp)** range around the 3-month at-the-money forward rate over the next 3 months [7][15] - A **42% probability** exists for the same rates to remain within a **100 bp** range around the 12-month at-the-money forward rate over the next year [25] - A **7% probability** that 2-year term SOFR rates will fall more than **75 bp** over the next 3 months, and a **5% probability** that 30-year term SOFR rates will rise more than **75 bp** in the same period [26] - **Market Dynamics**: The upcoming week is expected to bring significant events, including the **FOMC meeting** and the **Treasury quarterly refunding announcement**, which could influence market behavior [10][34] - **Curve Steepening Strategy**: The recommendation is to maintain long positions in UST curve steepeners, particularly at the 5-year maturity, as the net balance of risks favors this strategy [10][41] Additional Important Insights - **Economic Data**: Key upcoming data releases include labor market reports and inflation metrics, which could significantly impact market expectations and strategies [34][36] - **Tariff Implications**: The potential for higher tariffs could influence the Fed's dot plot and market expectations for future rate cuts, particularly if inflation data aligns with or exceeds expectations [28][34] - **Trade Ideas**: Specific trade ideas include maintaining long positions in UST 5-year notes and UST 3s30s yield curve steepeners, with defined targets and stop-loss levels [44][46] Conclusion - The overall sentiment in the US rates market indicates a level of complacency among investors, with significant upcoming events that could alter this perception. The strategies suggested focus on maintaining long-duration positions and preparing for potential market shifts based on economic data and policy announcements.

Investment Rating - The report maintains a bullish stance on U.S. Treasury duration and recommends staying long in curve steepeners [6][41]. Core Insights - The report highlights a dynamic labor market with slower private payroll growth but a low unemployment rate, indicating lower potential growth and equilibrium rates, which may lead to more Federal Reserve rate cuts [6][9][32]. - The employment report shows strength in state and local government jobs, particularly in education, which contributed significantly to overall payroll growth [10][11][22]. - The report suggests that as market-implied trough rates decrease, U.S. Treasury yields are expected to fall, supporting a bullish outlook on U.S. Treasury duration [35][41]. Summary by Sections Labor Market Analysis - The June employment report indicates slower private payroll growth, with a tighter labor market due to a decline in the labor force participation rate [9][32]. - State and local governments added 80,000 jobs in June, with education jobs accounting for 63,000 of these [11][12]. - The report notes that fewer teachers left for summer break than anticipated, which may have artificially boosted the seasonally adjusted figures [18][22]. Economic Outlook - The report emphasizes that lower potential growth will likely weigh on the equilibrium interest rate, suggesting that the Fed may need to cut rates more than currently expected [33][34]. - It is anticipated that the Fed's longer-run target rate may need to be adjusted downward over time [33][34]. Investment Strategies - The report recommends maintaining long positions in U.S. Treasury securities, particularly in the 5-year maturity sector, and suggests a UST 3s30s yield curve steepener [41][46]. - Specific trade ideas include maintaining long positions in UST SOFR swap spreads and SFRZ5 futures, with targets set for various instruments [46][49].

Investment Rating - The report indicates a dovish outlook for G10 policy rates through 2026, suggesting a significant decline in rates, particularly in the US, where 10-year Treasury yields are expected to reach 4.00% by the end of 2025 and just above 3.00% by the end of 2026 [6][27]. Core Insights - The report emphasizes that the US dollar is expected to weaken significantly, with the DXY forecasted to fall an additional 9% over the next 12 months to 91, driven by a convergence in US rates and growth to peers, alongside increased FX hedging flows [6][69]. - The report outlines a bearish outlook for global growth, particularly in the US, where real GDP growth is projected to decline from 2.5% in 2024 to 1.0% in both 2025 and 2026, influenced by tariffs and immigration restrictions [15][23]. - Inflation is expected to moderate globally, with core PCE in the US forecasted to reach 4.5% before declining, while the euro area is projected to undershoot the ECB's inflation target due to sluggish growth [23][34]. Interest Rate Strategy - In the US, Treasury yields are expected to range trade through 3Q25 before declining, with a forecast of 10-year yields at 4.00% by the end of 2025 and a larger decline in 2026 as the Fed is anticipated to cut rates by 175 basis points [3][27]. - The euro area is projected to see the 10-year Bund yield fall to 2.40% by 4Q25 and 2.20% by 4Q26, influenced by more ECB easing than currently priced in [3][35]. - In the UK, 10-year gilt yields are expected to end 2025 at 4.35% and 2026 at 3.80%, with the Bank Rate projected to decline further due to a slowdown in economic activity [41][43]. Currency & Foreign Exchange - The report forecasts continued weakness in the USD, with significant declines against safe-haven currencies such as EUR, JPY, and CHF, as the DXY is expected to fall to 91 by mid-2026 [8][69]. - Specific currency pairs are projected to move as follows: EUR/USD to rise to 1.25, GBP/USD to 1.45, and AUD/USD to 0.69 by mid-2026, reflecting various economic factors [8][69]. Inflation-Linked Bonds - In the US, breakevens are expected to remain elevated until 3Q25 due to tariff-induced inflation, with a tightening forecast around 2Q26 as inflationary pressures begin to cool [9]. Sovereign Supply Outlook - The report anticipates a decrease in net coupon bond supply across the G7, amounting to US$2.72 trillion in 2025, down 5% year-over-year, influenced by fiscal policy uncertainties [53][62].