FICC Focus Macro Matters: BI Rates 2026 US Treasury Market Outlook
Dec 4, 2025
Will Hoffman, a rates strategist at Bloomberg Intelligence specializing in U.S. and Canadian rates, joins Ira Jersey to dissect the future of the U.S. Treasury market. They discuss potential Fed rate cuts below 3%, a bull steepening yield curve, and the implications of fiscal policies on deficits. Hoffman explains the Fed's shift to a net-neutral balance sheet while detailing rising demand for T-bills. The conversation also highlights how supply and seasonal factors might influence short-end risks and the overall yield curve outlook through 2026.
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Fed Cuts Likely Bigger Than Market Expects
- Ira Jersey expects a slightly weaker US economy that prompts the Fed to cut more and faster than markets expect.
- He forecasts the Fed's terminal rate falling toward 2.5–3%, implying meaningful front-end rate declines.
Fed Balance Sheet Turns Net Neutral Then Grows
- Will Hoffman outlines that the Fed will enter 'net neutral' balance sheet policy with MBS runoff reinvested into T-bills.
- He expects reserve-management purchases to start in H2 2026 at about $60bn/year to meet currency and reserve demand.
Reserve Purchases Aren't QE, They're Backstop
- Hoffman stresses these reserve-management purchases are not QE in intent and shouldn't materially stimulate the real economy.
- The action aims to prevent repo/funding stress and keep the banking system functioning normally.