Global Rates Trader Hiking More or Less

Economics Research 18 September 2026 | 9:25PM BST

The Fed’s inflation-focused message should reinforce a flattening environment over George Cole | the near-term. The strong investment and labor market backdrop is likely to keep Goldman Sachs International longer-term yields in a higher range, but it will be difficult to sustain a return to William Marshall steepening until after the market gains clarity on the extent of rate hikes—which | typically only occurs around the time of the last hike. Rallies are likely to be the lower Goldman Sachs & Co. LLC vol outcome for the time being, and we tactically prefer selling vol on longer tenors Simon Freycenet | over duration exposure. The hawkish ECB reaction function to energy price moves Goldman Sachs Bank Europe SE - Paris offers a degree of protection to belly forwards. We think this flattening dynamic Branch continues in the near-term, with energy still the key uncertainty—we recommend Isabella Rosenberg long EUR 1y1y vs CHF. The BoE’s Gilt-friendly QT plans helped bull-flatten the UK | curve, but the incremental policy signals point to a November hike. This should keep Goldman Sachs & Co. LLC

flattening front-end gaps like M7M8. The message that accompanied the BoJ’s 25bp Friedrich Schaper | rate hike fell short of the market’s hawkish expectations; given front-end pricing and Goldman Sachs & Co. LLC the relative richness of 5s on the curve, we favor paying 5y JPY on the 2s5s10s fly. Loic Mathys | Goldman Sachs International United States and Canada n A sense of stability, if not relief. The Fed accompanied its unanimous decision to hike with a set of more hawkish signals—the number of projections indicating at least one more rate hike, the higher median dot further out the forecast horizon, and Chair Warsh’s repeated indication that the starting point was not restrictive. Our economists now expect an additional rate hike in October. The clearer, inflation-focused Fed message solidifies a flattening backdrop in the near-term, but was not so hawkish as to clearly argue for starting to price growth downside into the forwards. Instead, we think that some of the risks surrounding the policy approach have diminished, but the broader backdrop of strong investment spending and a stable labor market remain in place, entrenching longer term yields in a higher range. In the near-term we think rallies are likely to be associated with lower volatility. Lower yields are likely to come more from the belly of the curve as the asymmetry to additional hikes is a limit on very front-end rallies and a headwind to generalized steepening absent a shift in the growth picture, which leaves risks around our UST yield forecasts tilted higher and flatter. With oil likely to maintain its influence over day-to-day moves (Exhibit 1), we think short vol expressions further out the curve (below) are preferable to outright duration exposure for the time being.

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Goldman Sachs Global Rates Trader

n The high-water mark around hikes. Fed pricing over the next year implies a path that sits not only above our economists’ baseline, but above the hawkish side of the range of survey estimates and the Fed dots, implying roughly three more hikes by the middle of 2027. While we think market pricing is towards the hawkish end of the likely distribution of outcomes, history shows it is unusual for front-end forwards to peak meaningfully ahead of the end of rate hikes, with the 2015 cycle the notable exception for forwards more broadly and the 2022 cycle the exception for the very front-end (due to the regional banking shock). In 1997 and 1999—hiking cycles that also began from higher starting points—the peak in rates during the window between the first hike and three months after the last move came about a month after the lone hike in 1997, and was more or less coincident with the last hike of the series that began in 1999. Also notable is that in the three…