FedWatch Flashes Four Hikes by 2027 — Markets Yawn, Yields Yowl 📉

Traders are now pricing in four quarter-point Federal Reserve rate hikes by June 2027, with the CME FedWatch tool pointing to a federal funds range of 4.75% to 5% as the most likely outcome, up from the current 3.75% to 4% target. The Fed has already raised rates by 25 basis points this month, according to data cited by CoinDesk, and the repricing is rippling across global bond markets.

U.S. Treasury yields are climbing along the entire curve. The 20-year yield is approaching 5.5%, pushing the long-bond ETF TLT to all-time lows below $80, while the 10-year yield is above 5.1%, levels last seen in 2007. Borrowing costs are also rising in France, Germany, the U.K. and Japan as global investors digest the prospect of a longer stretch of tighter monetary policy.

Risk assets are coming under pressure as a result. Bitcoin ($BTC) has slid below $83,000, down from a local high of $87,500, while gold holds just above $4,200, down 25% from its January all-time high. The U.S. dollar index has climbed above 101, up roughly 3% year-to-date, and the Japanese yen has weakened back to 159 against the dollar, reversing much of its recovery from around 153 following reported U.S.-Japanese intervention last month.

Several factors are driving yields higher. The S&P Global composite PMI, covering manufacturing and services, rose almost 4.3% to 58.4 in September, exceeding expectations and signaling continued economic strength. Middle East tensions have complicated the inflation outlook, contributing to higher oil and diesel prices, while heavy borrowing to fund AI infrastructure is increasing the supply of bonds competing with Treasuries for investor dollars.

The question now is whether the prospect of additional Fed hikes will keep lifting yields and the dollar, or whether bond markets have already done the Fed's work for it by tightening financial conditions on their own.