Fixed Income Update 19 Feb 2026
KBVS WEEKLY FIXED INCOME UPDATE
Thursday, 19 February 2026
Market Repricing of Fed Cuts Supports DXY and Shapes Bond Dynamics
The softer-than-expected CPI print initially reinforced expectations of a near-term Federal Reserve rate cut. However, the Minutes of the 29 January 2026 meeting of the Federal Open Market Committee, released on 18 February, revived concerns over a potentially more hawkish policy stance, prompting markets to reassess the trajectory of US monetary policy. Current market pricing indicates a 92.1% probability that the policy rate will remain unchanged at 350–375 bps at the March 2026 meeting. The first rate reduction is now firmly anticipated at the 17 June 2026 meeting, with a 50.0% probability of a 25 bps cut to the 325–350 bps range. The easing cycle is expected to proceed gradually, with a second 25 bps reduction—to 300–325 bps—emerging as the base case for the 16 September 2026 meeting, currently assigned a 36.2% probability.
This repricing of easing expectations has continued to underpin support for the DXY Index, which is trading within the 96–98 range. Meanwhile, the UST 10Y–2Y and 30Y–5Y yield spreads remain in positive territory but are consolidating, reflecting market adjustments toward a delayed—yet increasingly likely—mid-year policy pivot.
Domestically, front-loaded issuance of SBN in 2026 has become more pronounced, with total issuance reaching IDR178 trillion as of 18 February 2026, compared with IDR140.4 trillion over the same period last year. Concurrently, daily trading activity has been relatively more robust than in 2025. In our assessment, this dynamic also signals a more cautious positioning by global investors amid persistent macroeconomic and policy uncertainties.
Regards,
KBVS Research Team