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Bond Market News
Markets Price in 25bp Fed Rate Hike in Oct after Hawkish FOMC
June 18, 2026
The US Treasury yield curve bear flattened sharply yesterday after the hawkish FOMC meeting. The 2Y yield jumped higher by 11bp while the 10Y yield rose by only 2bp. The FOMC unanimously voted to keep rates unchanged at 3.50-3.75% under the new Chairman Kevin Warsh. However, the Fed did not provide major details on the conditions for their interest rate outlook. The dot plots showed a widespread dispresion with one member penciling-in three hikes for 2026, while five members projected two hikes and three members forecasted one hike. Besides, Warsh did not participate in the dot plots, echoing his preference not to provide guidance on the same.
The Fed raised their Headline and Core PCE median forecasts for 2026 significantly to 3.6% and 3.3% respectively, as compared to 2.7% for both readings in March. Real GDP growth is projected at 2.2% this year (vs. 2.4% in March). Warsh also said that he will set up task forces that will focus on the Fed’s balance sheet, communications practices and data sources to drive future policy decisions.
On the data front, US Headline and Core Retail Sales for May grew by 0.9% and 0.5%, beating expectations of 0.6% and 0.3% respectively. Separately, the US and Iran digitally signed an agreement that involves opening the Strait of Hormuz among other points. Markets are now pricing-in a 25bp rate hike by the Fed in October and also a 40% chance of another hike in December.
Following the FOMC meeting, the S&P and Nasdaq ended lower by 1.2% and 1.3% respectively. US IG CDS spreads widened by 1.1bp and HY CDS spreads widened 6.4bp. European equity markets ended higher. European IG CDS spreads were 0.1bp tighter while Crossover spreads widened by 1.7bp. Asian equity markets have opened mixed this morning. Asia ex-Japan CDS spreads widened by 0.4bp.
New Bond Issues
Zurich Insurance raised $500mn via a 7Y bond at a yield of 5.047%, 25bp inside initial guidance of T+100bp area. The senior unsecured note is rated Aa3/AA-. Proceeds will be used for general corporate purposes, including potential refinancing of existing debt.
City Developments Ltd. (CDL) raised S$300mn via a 5Y bond at a yield of 2.5%, inline with final guidance. The senior unsecured note is unrated. Proceeds will be used to finance general working capital and corporate funding of CDL and its subsidiaries, and/or to refinance the existing borrowings.
New Bonds Pipeline
- China € 5Y/8Y/12Y bonds
- Trafigura $ 5Y bond investor meetings
- Posco International $ 5Y bond
- Mirae Asset $ 3Y/5Y
- Aljazira Bank $ PerpNC5.5 AT1 sukuk
- Vedanta Resources $ long 5Y, long 7Y, long 10Y bonds
Rating Changes
- Intrum Upgraded To ‘B-‘ On Capital Raise Approval; Off CreditWatch Positive; Outlook Positive On Solid Deleveraging
- Moody’s Ratings upgrades Digicel’s ratings to B1; stable outlook
- Fitch Places Olin and Huntsman on Rating Watch Positive Following Merger Announcement
- JCDecaux SE Outlook Revised To Positive On Stronger Credit Metrics; ‘BBB-/A-3’ Ratings Affirmed
- Moody’s Ratings changes Altice France’s outlook to positive and affirms all ratings
Term of the Day: Fed Dot Plot
The Fed dot plot is a visual representation of interest rate projections of members of the Federal Open Market Committee (FOMC), which is the rate-setting body within the Fed. Each dot represents the Fed funds rate for each year that an anonymous Fed official forecasts. The dot plot was introduced in January 2012 in a bid to improve transparency about the range of views within the FOMC. There are typically 19 dots for each year, representing the median rate of each voting member on the committee. However, with Warsh opting out of the June 2026 FOMC meeting’s dot plots, there were only 18 dots in the meeting.
Talking Heads
On Pimco Favoring Australian Bonds, Betting on Rate Cuts Next Year
“With the market still pricing in the chance of additional policy tightening and the cash rate remaining around its current level for a couple of years, inflation risks look well and truly priced”… There’s “considerable value” in Australian debt as risks to the economy grow
On Warsh Rocking the Bond Market in Debut, Sparking Surge in Rate-Hike Bets
Kate Moore, Citi Wealth
“We’re getting a message very clearly from policymakers that the rates trajectory is not lower in the near term”
Ian Lyngen, BMO Capital Markets
“If nothing else, the market has renewed confidence in the Fed’s inflation fighting ability and conviction”
James St. Aubin, Ocean Park Asset Management
“He’s really just trying to appease two masters. He’s walking a fine line.”
On Fed Market Message Is to Brace for Hikes – Bob Michele, JPMorgan
“Half the committee is expecting rate hikes this year, which is a real shot across the bow at the market. I think they’re getting ready for rate hikes… Nobody is thinking that this inflation will be transitory enough, and we’ll see disinflation between now and the end of the year”
Top Gainers and Losers- 18-Jun-26*
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