The US Treasuries curve bear flattened overnight as market participants digest the 25bps hike and hawkish forward guidance. To be sure, the 25bps hike was largely priced and the act should not have much impact on yields. Notably, yields were drifting lower before the FOMC meeting outcome. However, given Fed Chair Warsh’s characterisation of a firm labour market, insufficient progress on inflation and loose financial conditions, he was clearly hawkish. Moreover, given the unanimous vote to hike and an additional hike in the dot-plot for the year, US yields simply followed momentum higher.
We have a few observations. First, the frontend of the curve has turned even more aggressive, factoring a terminal FFR rate of 4.75% (higher than our adjusted forecast of 4.5%). This would require the economy and inflation to run hot for some time. Second, the backend of the curve looks more anchored amidst a more hawkish Fed. While 10Y yields are still trading above 5%, this represents more of a higher-for-longer regime, rather than a further disorderly selloff in USTs. Curves are probably rangebound with a mild bias towards flattening. Third, while stocks did dip post decision, financial conditions still look very loose. There are no indications that yields are too high such that they would meaningfully restrict the economy and / or force a correction in risk assets. Fourth, our own assessment indicates that CTA momentum still favours UST price downside. 
Our USD, HKD and SGD rates forecasts have been adjusted higher accordingly. Our estimates of where long-run USD rates have also been tweaked.
Assumptions / Estimates of USD rates
Frontend – Fed hikes to 4.5% in early 2027. Risks skews modestly higher.
Back end – 4.5-5.5% neutral.
Long-term estimate for 10Y UST and 10Y OIS (2028-2030) – Under non-stressed, moderate economic growth conditions, 10Y UST yields likely between 4.0-5.0% (midpoint 4.5%) and 10Y SOFR OIS between 3.60-4.6% (midpoint 4.1%).
Subscribe here to receive our economics & macro strategy materials.
To unsubscribe, please click here.
Topic
Explore more
E & S Macro StrategyGENERAL DISCLOSURE/ DISCLAIMER (For Macroeconomics, Currencies, Interest Rates, Digital Assets or Commodities)[1]
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
[#for Distribution in Singapore] This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 11th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
[1] This disclaimer may not apply if the applicable assets fall within the definition of 'financial instruments' that are set out in Article 2(1) EU MAR (e.g. financial instruments that are traded on a regulated market, MTF or OTF, etc.). Section C of Annex I of MiFID2 specifies these 'financial instruments'.