US Rates Strategy Weekly

Key arguments

• The Fed is expected to hike 25bp next week to 3.75–4.00% to counter doubts that its commitment to price stability is only verbal.
• Term yields have been in a 'disappointment' feedback loop since July, with market disappointment over the Fed's inaction and the Treasury's buybacks pushing yields higher.
• The announced buyback was smaller than anticipated, and the operation came in below the $6bn maximum, pushing 10-year yields above 4.95%.
• Evidence of corporate crowding-out of Treasuries is weak; half of the back-up in yields reflects inflation expectations and policy disappointments, not supply.
• 10-year yield at 4.95% is cheap versus the 4.30% fair-value model, with a residual of 65bp versus 10bp a year ago, favoring adding duration.
• Higher oil is an immediate inflation concern, but if the Fed reasserts credibility the oil impulse should be absorbed at the front end.

Corresponding source evidence

1. US Rates Strategy Weekly September 11, 2026 Joseph Abate, US Rates Strategy Monty Gandhi, US Rates Strategy Troy Ludtka, US Economics joseph.abate@smbcnikko-si.com mgandhi@smbc-cm.com troy.ludtka@smbcnikko-si.com 1 212 893-1592 1 212 224-5114 1 212-224-5483 • We expect the Fed to raise rates at next week’s FOMC meeting . · 2026
2. There is some uncertainty about what the FOMC needs to see to be convinced inflation is cooling.
3. The Fed may need to hike in September to counter doubts that its commitment to price stability is only verbal .