On FOMC day, I expect the Fed to lean more dovish than what markets are currently pricing. I place little weight on the dots or the SEP—this may move FFZ5, but should have only limited impact on the 5-10y yield. I believe the Fed stands on the dovish side among major central banks, they are dependent on equity and labor market conditions unless inflation meaningfully undermines its outlook.

Historically, a 0.3–0.4% MoM CPI print hasn’t been decisive; the Fed has previously begun cutting cycles with YoY CPI above 3%. With real yields around 1.5% and inflation expectations anchored near 2.5%, the risk of a 2022-style inflation flare-up looks contained, particularly with NFP data showing signs of slowing.

My view is straightforward: the risk is skewed toward yields falling further rather than rising. I prefer to hold long rates positions and would add on any hawkish surprise from the Fed. I will also maintain and scale into my 2s5s10s BF belly short.