Citi: Driven by short-term bonds, the U.S. Treasury yield curve is expected to steepen

Citigroup rate strategists stated in a report that driven by short-term bonds, the U.S. Treasury yield curve is expected to steepen. In a "bullish steepening," short-term rates decline faster than long-term rates. The strategists mentioned in a report: "Due to the increasing risk of rising unemployment or a continued rebound in labor force participation, we have a bullish steepening bias for 2026."

Therefore, Citigroup strategists believe that the market should have already priced in expectations for further rate cuts by the Federal Reserve in the second half of this year, which will keep the "belly" (i.e., the middle part of the curve) stable. "Against a backdrop of strong economic conditions, coupled with a dovish Federal Reserve and growing concerns about supply, the yield curve should further steepen." (Jin Shi)