AFS Markets Blog: Morning 24/09/2026

• Meanwhile in markets, someone might want to check in on Treasury Secretary Scott Bessent. Over the past 24 hours, Treasury yields have hit new highs for 2026, USDJPY has moved back into the 158 handle and crude has moved back above $100 a barrel. It seems the house has grown tired of winning;

• The latest Treasury sell-off was triggered by a five-year high reading from the US S&P PMI, so glass-half-full types can at least rejoice in that fact that the economy is strong. But that strength sent US Treasuries into a 9–14bps bear flattener, with yields holding near yesterday’s highs this morning. So what’s the damage? The 2-year yield hit 4.90 percent, the 10-year reached 5.12 percent, and the 30-year is at 5.41 percent – essentially at its 2007 peak with the 2004 record next in line;

• FOMC rate hike expectations were also not immune, with fed fund futures pricing in 17.5bps of hikes for the October meeting – up from 14bps ahead of yesterday's PMI release. Punters are also increasingly leaning toward four additional 25bps hikes this cycle rather than three, with 92 bps of total tightening priced in over the next 12 months;

• In our neck of the woods, ECB-dated ESTR forwards are also increasingly leaning toward an October hike, with 16bps currently priced in – up a basis point since yesterday’s US PMI data. Just like in the US, the terminal rate now leans towards four more 25bps hikes this cycle;

• Moving to FX markets, EURUSD is approaching its 2026 lows after dropping nearly three cents over the past month. Meanwhile, the recovery of USDJPY now has it testing its 200-DMA – trading at 158.25 at pixel time. In broader markets, Brent crude is trading at $102 a barrel. European diesel futures are up nearly five percent over the past two days amid reports that President Trump is considering a diesel export ban – leaving Europe to scrap over the ever-diminishing  global supply left;

• Looking ahead, I want to pay a little attention to the Swiss National Bank interest rate decision this morning. While central banks globally continue to hike, the SNB is set to keep its policy rate steady at zero percent. Inflation remains in the lower half of its target range, with core inflation anchored near the bottom end. However, punters are getting anxious that an energy shock combined with growing rate differentials that have weakened the franc will pressure the SNB into moving in the near future. For its December meeting, 15bps of hikes are priced into SARON swaps, climbing to 32bps by March 2027. While I expect the SNB to be hawkish in the presser and raise its conditional inflation forecast, I don’t see it shifting high enough to justify this hawkish pricing. Barring a winter energy price shock like in 2022, the SNB is still in a position to hold rates at zero for the foreseeable future;

• Despite the franc’s weakness I don’t expect the SNB to start selling parts of its foreign investment portfolio to support the currency – at least not without starting to hike interest rates first. Back in 2022, the SNB waited until its second rate hike of the cycle – which combined with the first one raised the SNB’s policy rate by a total of 125bps – before they started selling off parts of their foreign investment portfolio to support the franc. Given that rates aren’t coming from deeply negative territory FX intervention can come into the picture sooner this time, but a stand-alone reduction of its foreign investment portfolio is unlikely;

• Using FX intervention as the only tool to reduce imported inflation is a potential geopolitical landmine. President Trump has long envied Switzerland’s rock-bottom interest rates. Suppose the SNB suppresses inflation through FX intervention alone. Even if the intention isn’t to ‘subsidize’ lower interest rates, Washington is unlikely to take it well. Even without all this, Trump toyed with the idea of halting trade with Switzerland entirely in an interview last month. While I don’t see that happening, the Swiss will want to avoid provoking retaliatory trade measures. I actually expect the SNB to soften its FX intervention language in its policy assessment compared with June – a clear signal that the franc’s recent weakening is acceptable;

• Alongside the Swiss National Bank, we will be treated to rate decisions from Norges Bank and the Riksbank. The Norges Bank faces a tight decision, with OIS swaps pricing in 16bps of hikes. Should the wisdom of the crowd prove correct, the Norges Bank hike would be their first hike since May;

• Over in Sweden, the consensus is that the chefs at the Riksbank are cooking up another hold – as they have done throughout all of 2026. Nevertheless, OIS swaps suggest that the hold won’t last much longer – with 30bps of hikes priced in by year-end. That might seem surprising given underlying inflation is currently under 1 percent YoY. However, tax measures are temporarily masking price pressures and once you filter those out – which will start happening over the coming months – rising energy costs are starting to pose a real threat to Swedish price stability;

• Besides the full slate of central bank decisions, we’ll be treated to plenty of speaking engagements from ECB- and Fed-officials. On the data front we have the obligatory US jobless claims. Wrapping up the calendar is the summit between President Trump and President Xi in Washington. We already got our first headline – in the one win he got yesterday, Secretary Bessent announced that the US and China would extend their trade truce by another two months, until January 10.

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