Global Rates Trader Priced For Surprise

Economics Research 24 July 2026 | 7:56PM BST

The increase in July hike pricing over the last week has put the Fed in position to George Cole | deliver the largest non-cut meeting day “surprise” in recent memory. Our economists Goldman Sachs International expect the Fed to keep the policy rate stable, the impact of which we think will hinge William Marshall heavily on how Chair Warsh frames the decision and path ahead. In particular, we | think the (relative) long-end stability and contained inflation risk premia are Goldman Sachs & Co. LLC vulnerable to an on-hold decision that is accompanied by limited guidance on the Simon Freycenet | outlook or reaction function. European front-end rates now meaningfully exceed our Goldman Sachs Bank Europe SE - Paris central bank forecast, but as long as energy—especially gas—prices head higher, Branch momentum is likely to trump value. In both EU and UK front-ends, Z6Z7 bear Isabella Rosenberg steepening is unlikely to sustain—either inflation subsides or volatility will migrate to | earlier meeting dates, flattening the front-end. We ultimately think 2s10s curves Goldman Sachs & Co. LLC

steepen over coming months, especially in the UK where fiscal risks will likely keep Friedrich Schaper | Gilt risk premium elevated. 2y JGB yields pushed higher alongside further JPY Goldman Sachs & Co. LLC currency weakness on reports the BoJ may consider faster hikes, but more durable Loic Mathys flattening would likely require more evidence of a tighter monetary and fiscal policy | mix. Goldman Sachs International

United States and Canada n CPI relief retreats. The roughly 15% rise in oil since last week’s CPI release has helped to take the market from pricing a hike in July as a remote possibility to a meaningful risk. Our economists’ baseline remains for the Fed to remain on hold; if current pricing holds it would set the stage for what we estimate would be the largest non-cut “surprise” on a meeting day in recent decades regardless of outcome (Exhibit 1). While media reports during the last cycle helped steer pricing to the ultimate outcome in the days prior to the decision, a meeting day surprise would nonetheless reflect the shift away from more proactive guidance. Assuming oil prices remain higher through the meeting, we expect a hold would most likely see hike pricing reshuffle, keeping late-26/early-27 pricing stickier (whereas a hike would likely pull the peak of the front-end forward), but broader behavior will hinge heavily on how the decision is communicated. We think on-hold policy paired with limited explanation of the outlook or reaction function would present risk to belly and long-end longs insofar as it could undo the “credibility” repricing seen following the June FOMC (Exhibit 2) and reintroduce inflation risk into the forwards. Longer-term forward valuations have

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moved to the cheap side of fair in the recent selloff, but are still not so stretched as to argue for correction without a macro catalyst that arrests inflation risk or undermines the perception of growth resilience—both of which we continue to think would exert greater effect on shorter maturities.

Exhibit 1: If current pricing for the July FOMC holds, we Exhibit 2: June’s FOMC prompted a strongly hawkish estimate it would be the largest non-cut “surprise” in repricing recent decades Change in UST yields on 17Jun26 FOMC Estimated non-cut meeting day “surprise” versus market pricing

bp Realized meeting day surprise (hold) bp bp bp Realized meeting day surprise (hike) 20 20 20 20 Surprise if July hold (assuming current pricing) Surprise if July 25bp hike (assuming current pricing) 15 15 15 15

- y 5y 10y 30y 5y 10y 30y 5y 10y 30y -15 -15 Nominal Yields Real Yields Breakevens Feb-94 Feb-98 Sep-01 Aug-05 Apr-09 May-13 May-17 Mar-21 Mar-25

“Surprise” measured as meeting day change in weighted first or 2nd fed funds Source: Bloomberg…