[MARKET ANALYSIS] USTs rebounds from the hawkish FOMC announcement; focus now lies on the BoE and BoJ

Global fixed income benchmarks are mixed, with USTs outperforming, paring back some of the pressure seen following the hawkish FOMC announcement. To recap, the Fed hiked rates by 25bps to 3.75-4.00%, in a surprise unanimous decision. The median projection saw another hike by year-end before rates remain on hold throughout 2027, although 8 participants see an additional hike in 2027. In the presser, Warsh echoed a familiar tone, highlighting price stability as the primary focus against the backdrop of a strong economy and a labour market at or near full employment. In an immediate reaction, USTs fell from 106-11 to a trough of 105-22+ by the end of the presser, pushing the 10yr yield back above 5.00%. As the European session got underway, USTs have rebounded slightly and has returned to the 106.00 mark, a move which came alongside pressure in the crude complex. With the Fed out of the way, focus will be on the BoE today and the BoJ early in tomorrow's session. For the BoE, markets expect the Bank to keep rates steady at 3.75% with the vote split seen at 6-3. Lombardelli is seen as the member on the fence, and could tilt the vote to 5-4. The annual QT vote is also due, with the pace of balance-sheet reduction expected to slow to GBP 50bln from GBP 70bln. Active sales are expected to remain at around GBP 20bln, although reports suggest the BoE will halt sales of long-dated gilts in the 20-30yr region. Thus far, Gilts reside in a 84.69-85.15 band. Regarding the BoJ, it is widely expected that rates will be hiked by 25bps to 1.25%, with money markets fully pricing in a hike. Multiple source reports have helped markets bake in a rate hike, while hawkish commentary by BoJ members has pointed to the need for further hikes, with Takata even calling for the possibility of a 50bp rate hike.