• 25bp Cut Fully Priced In: Markets widely expect the Federal Reserve to deliver a 25 basis point cut on Wednesday, leaving little room for surprise unless Powell signals a more aggressive stance.
• The “Hawkish 50bp” Scenario: A 50bp cut would dominate sentiment and allow Powell to strike a hawkish tone, signaling confidence in containing inflation while addressing growth risks.
• Long Rates in Focus: The front end remains tied to the path of Fed funds, but uncertainty persists at the long end. Some downside in 10Y yields is likely short-term, followed by renewed upside as inflation risks reemerge.
• Inflation Risks Ahead: Past Fed cuts (2024) coincided with sticky inflation. With today’s weaker economic optics, cuts could cushion growth risks but also raise concerns about inflationary pressures in the coming months.
• EUR Curve Dynamics: The 10Y Bund yield keeps testing 2.7% while the ultra-long end remains influenced by pension reforms, supply factors, and ECB guidance. Structural drivers continue to play a big role.
• Wednesday’s Data Watch: Final eurozone CPI, US housing data, and multiple ECB speakers (including Lagarde) will set the stage ahead of the Fed decision.
• Market Supply Factors: Germany auctions €2.5bn in long-end bonds, and Italy conducts buybacks of 2026 maturities worth up to €5bn — important for supply-demand balance in European rates.

What’s Next?
A 25bp cut seems the path of least resistance, but with inflation risks still looming, the long end of the curve won’t stay calm for long. If Powell leans dovish, we could see an initial rally in bonds — but ultimately, inflation realities may push yields back higher.