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News and events

01.23.2026

Dismissing downside risks to UST yields

We keep our strategically NEUTRAL stance UNDER REVIEW with a negative outlook

In the last few weeks, downside risks to UST yields have emerged, in particular from:
1) a more favourable-than-expected funding mix in 2026;
2) the purchases of MBS by Fannie Mae and Freddie Mac mandated by the US administration;
3) the US attack on Venezuela.
While these factors might mitigate upward pressure on the term premium, we believe that none of these risks constitutes a game changer or a major driver of USTs in 2026.
In fact, we continue to think that that UST performance in 2026 will be driven by macro fundamentals and the fiscal outlook, as well as political risk premium. All these factors point to higher UST yields in the medium term.
For several reasons:
1) We now expect annual growth rate of 2.7% in 2026 (vs 2.0% previously), with growth remaining above potential throughout 2026. Against this backdrop, the risks of overheating have risen.
2) The risk of a higher-than-forecasted fiscal deficit is increasing, as Trump seeks to address the affordability crisis in the US and counter his loss of popularity from multiple angles.
3) We expect the political risk premium to remain high or even increase further. The unprecedented launch of a criminal investigation into Fed Chair Powell by the Department of Justice confirms that unorthodox moves by the Trump administration are likely to continue in 2026.


Chiara Cremonesi ​
Senior Rates Strategist 
Investment Research

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