Sector desk · Publishes in week A of the cycle

10

Macro, Rates & FX

Central bank decisions, the yield curve, currency moves and inflation.

Macro, Rates & FX — Meridian62 sector poster

Analysts

Hannah KhaliqueBSc Economics, Finance and Data Science · Imperial College London
Valeria BatsouliBSc Medical Biosciences · Imperial College London
Arthur Yuan-PritchardBSc Medical Biosciences · Imperial College London

Equities covered this term

Fed Federal Reserve
USDJPY USD/JPY
GB10Y UK 10-Year Gilt

Weekly notes

2 notes on the record

When this desk publishes
Week of 26 October 2026 Equity UK 10-Year Gilt · GB10Y

Inflation, not gilt yields, is the faster threat to the Budget

By Hannah Khalique, Valeria Batsouli, Arthur Yuan-Pritchard · Macro, Rates & FX desk

What happened

On 21 October, the ONS reported that UK inflation rose to 3.5% in September, up from 3.1% in August, with motor fuels the biggest driver [1]. Economists had expected 3.4% [2]. The 10-year gilt yield stayed around 5.4% this week, close to multi-year highs, ahead of Chancellor John Healey’s first Budget on Wednesday 28 October [3][4].

What people are missing

Most coverage focuses on gilt yields, the interest rate the government pays when it borrows by selling gilts. But a rise in yields only affects new borrowing. Most existing debt pays a fixed rate until it is repaid, so higher yields feed into the government’s debt interest bill slowly, over years. Index-linked gilts are different. Their interest payments, and the amount repaid at the end, rise with the Retail Prices Index (RPI), with a lag of about three months [5]. The government had around £692bn of these bonds outstanding at the end of June 2026 [6]. This means an inflation surprise like September’s raises the government’s costs within months, much faster than a rise in gilt yields does. It also adds to pressure that already exists: August borrowing was £3.5bn above the Office for Budget Responsibility’s forecast [7].

Why it matters

Money spent on debt interest cannot be spent on public services or used to cut taxes. If inflation stays high, the Chancellor could have less room in the Budget even if market borrowing costs stop rising. The price rises that squeeze households’ budgets also squeeze the government’s.

What we are watching next

On 28 October, the OBR’s forecast published alongside the Budget should show how much of the change in debt interest comes from inflation rather than higher gilt yields [4]. On 5 November, the Bank of England sets interest rates, having held Bank Rate at 3.75% in September in a 6-3 vote [8].

Sources

  1. ONS — Consumer Price Inflation, UK: September 2026 (21 October 2026)
  2. BabyPips — UK Inflation September 2026 (21 October 2026)
  3. Trading Economics — UK Gilt Yields Hold Near Multi-Year Highs (21 October 2026)
  4. Debt Management Office — Gilt Issuance October to December 2026
  5. ONS — The Calculation of Interest Payable on Government Gilts
  6. Debt Management Office — Quarterly Review, April–June 2026
  7. TS2 — UK Borrowing Overshoots by £3.5 Billion (22 September 2026)
  8. Cambridge Currencies — Next Bank of England Interest Rate Decision

Meridian62 notes explain what is happening and why. They are not investment advice and do not recommend buying or selling anything. Read the disclaimer.

Week of 5 October 2026 Equity Federal Reserve · Fed

Investors are pricing the Fed's response, not the inflation itself

By Hannah Khalique, Valeria Batsouli, Arthur Yuan-Pritchard · Macro, Rates & FX desk

What happened

Spot gold fell by around 3% on 28 September 2026 to roughly $4,150 per ounce, its lowest level since 5 August, after a surge in crude oil renewed concerns about inflation [1]. Gold is widely held as a hedge against inflation, so an inflation scare would ordinarily support its price — instead it did the opposite. Over the same period, markets moved to price a more than 70% chance of a further increase in the federal funds rate at the October meeting, following the Federal Reserve’s decision on 16 September 2026 to raise the target range to 3.75%–4.00% [2][3].

What people are missing

Gold’s fall is being read as a signal about inflation expectations, but gold is a poor instrument for that purpose, because several variables moved at once: oil, the dollar and real yields all shifted on the same day, and the gold price responds to all of them together. Isolating expected inflation requires a comparison in which only that variable differs, and the Treasury market provides one, since conventional and inflation-protected bonds of the same maturity differ principally in whether they compensate the holder for inflation. The gap between them, the ten-year breakeven rate, began September 2026 at 2.35% and stood at 2.34% on 28 September, moving within a range of roughly seven basis points across the month [4]. Over the same period the nominal ten-year yield rose from 4.78% to 5.24%, so almost the whole of that 46 basis point increase came from real yields rather than from expected inflation, and the two-year rose further still, by 54 basis points [5]. On that evidence we read September as a repricing of expected policy rather than of long-run inflation, which is a more reliable reading than the gold price alone can give.

Why it matters

If markets are responding to what the Federal Reserve is expected to do, rather than to inflation itself, the effect shows up first in the price of the dollar. Higher expected American interest rates draw money towards dollar assets, and the dollar index has strengthened above 101, close to its highest level this year [5]. For anyone outside the United States, that means American goods, oil and other commodities priced in dollars, and dollar debts, all cost more — which is how a decision taken in Washington reaches households elsewhere.

What we are watching next

The Federal Open Market Committee meets on 27–28 October 2026, and the figure we are watching is the ten-year breakeven rate, which closed September at 2.35%. If it begins to rise while nominal yields hold, the reading above no longer holds, and the market would be telling us something about long-run inflation instead.

Sources

  1. CNBC — Gold and Silver Prices Fall Sharply as Higher Bond Yields Weigh on Metals (28 September 2026)
  2. Board of Governors of the Federal Reserve System — Implementation Note (16 September 2026)
  3. CME Group — FedWatch Tool (accessed 30 September 2026)
  4. Federal Reserve Bank of St Louis — FRED T10YIE
  5. Federal Reserve Bank of St Louis — FRED series DGS2 (accessed 30 September 2026)

Meridian62 notes explain what is happening and why. They are not investment advice and do not recommend buying or selling anything. Read the disclaimer.

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