Category: Economics · Originally published on Predifi
Key Points
- BofA Global Research and Wall Street firms predict no Fed rate cuts in 2026
- First Fed rate cut now expected mid- to late-2027
- 10-year US Treasury yields rise by 50 basis points
- Emerging markets face increased default risk due to higher US rates
In a dramatic turn of events, global bond yields are experiencing a significant uptick as markets recalibrate their expectations for Federal Reserve rate cuts. The updated guidance from BofA Global Research and other Wall Street firms has led to a stark realization: investors no longer anticipate any rate cuts in 2026. Instead, the first reduction in the federal funds rate is now projected for mid- to late-2027. This shift is primarily driven by persistent US inflation and a robust labor market, which have forced the Fed to maintain a "wait-and-see" stance.
The implications of this delayed rate cut are profound. With the federal funds target range held at 3.50–3.75% since the start of 2026, following three cuts at the end of 2025, the market's repricing of expectations has sent shockwaves through global bond markets. Approximately $1 trillion in global bond markets have been repriced, and a 10% shift in global capital flows is already underway. The 10-year US Treasury yields have risen by 50 basis points, and equity strategists are warning that higher-for-longer US rates are reshaping global capital flows and putting immense pressure on highly-indebted emerging markets.
On 20 June, BofA Global Research and other prominent Wall Street firms released updated guidance indicating that investors should no longer expect any Federal Reserve rate cuts in 2026. This new outlook pushes the timing of the first post-pause Federal Reserve rate cut into mid- to late-2027. The Federal Reserve has kept the federal funds target range at 3.50–3.75% since the start of 2026, following three cuts at the end of 2025. At its 29 April meeting, the Fed reiterated its "wait-and-see" stance, citing persistent US inflation and robust labor market data as key factors. As a result, global bond yields have risen, with 10-year US Treasury yields increasing in recent sessions.
The root cause of this market shift is the persistent US inflation and robust labor market, which have compelled the Federal Reserve to maintain higher interest rates for longer. The causal chain begins with the updated guidance from BofA Global Research and other Wall Street firms, which indicated that investors no longer expect any Federal Reserve rate cuts in 2026. This led markets to push back the timing of the first post-pause Federal Reserve rate cut into mid- to late-2027. Consequently, global bond yields have risen as a result of these delayed rate cut expectations. This scenario is reminiscent of the 2008 Global Financial Crisis, where prolonged high rates contributed to an extended economic downturn that took 18 months to resolve. The underpriced risk in this situation is the increased default risk in highly-indebted emerging markets due to the prolonged high US rates.
This is a classic example of the transmission mechanism seen in previous financial crises, where higher US rates lead to increased borrowing costs globally, impacting equity markets and emerging market debt.
The repricing of global bond yields has immediate second-order effects on various financial instruments and prediction markets. US Treasury yields at the long end have "continued grinding higher," with 10-year yields rising by 50 basis points. This increase in yields has led to a repricing of approximately $1 trillion in global bond markets. The transmission mechanism from this event to the market begins with the rise in US Treasury yields due to delayed rate cut expectations, which then leads to higher borrowing costs globally. This, in turn, impacts equity markets and emerging market debt, causing a 10% shift in global capital flows. Cross-asset spillover effects are already evident, with equity strategists highlighting the pressure on highly-indebted emerging markets.
Investors should closely monitor upcoming data releases, particularly US inflation reports and labor market data, as these will be critical in determining the Fed's future policy decisions. The next Federal Open Market Committee (FOMC) meeting on 28 July will be a key date to watch, as any signals from Federal Reserve Chair Jerome Powell could further influence market expectations. The single most important question remaining is whether the Fed will maintain its "wait-and-see" stance or if new economic data will prompt a shift in policy.
Prediction markets focused on rate-hike probabilities, recession odds, and unemployment forecasts are likely to see significant shifts. The probability of a rate cut in 2026 has dropped to near zero, while the likelihood of a cut in mid- to late-2027 has increased. The next key catalyst will be the FOMC meeting on 28 July, where any signals from Federal Reserve Chair Jerome Powell could further influence these markets.
This article was originally published at predifi.com/blog/global-bond-yields-rise-as-fed-rate-cut-delayed-to-2027. Predifi is an on-chain prediction market aggregator built on Hedera. Join the waitlist →
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