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Cleveland Fed Mester Pushes Back on 75Bp May Hike, Favors 50Bp

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Rates trade modestly higher after the bell, recovering a portion of Thursday's sell-off. Bonds see-sawed +/- a few ticks around steady in early trade before making session highs around 1000ET, 30YY slipped to 2.8850% before climbing and holding a range from noon on around 2.9470%.
  • Short end rates were under pressure for much of the session recovered slightly after the bell as Cleveland Fed Mester pushed back on any need for 75bps hike at May 4 FOMC, in favor of 50bp moves.
  • Curves bounced off flatter levels: After tapping 42.0 ahead Mon's open, 2s10s fell to 14.108 low in the first half as markets price in the off chance of 75bp hike at the May 4 FOMC. Bbg noted Fed Swaps priced in 250bp in hikes by year end.
  • Nomura analysts anticipate the Fed to make two consecutive 75bp hikes (June and July) after a 50bp hike on May 4:
  • "For some time, our view has been that if the Fed could hike 200bp at one meeting without significantly affecting market functioning, they would. So far, markets have been reluctant to price 75bp hikes, but stronger pricing for such a move would likely ease the path for the FOMC and participants could likely forge a consensus on such action quickly".
  • Fed enters Policy blackout at midnight tonight.
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Rates trade modestly higher after the bell, recovering a portion of Thursday's sell-off. Bonds see-sawed +/- a few ticks around steady in early trade before making session highs around 1000ET, 30YY slipped to 2.8850% before climbing and holding a range from noon on around 2.9470%.
  • Short end rates were under pressure for much of the session recovered slightly after the bell as Cleveland Fed Mester pushed back on any need for 75bps hike at May 4 FOMC, in favor of 50bp moves.
  • Curves bounced off flatter levels: After tapping 42.0 ahead Mon's open, 2s10s fell to 14.108 low in the first half as markets price in the off chance of 75bp hike at the May 4 FOMC. Bbg noted Fed Swaps priced in 250bp in hikes by year end.
  • Nomura analysts anticipate the Fed to make two consecutive 75bp hikes (June and July) after a 50bp hike on May 4:
  • "For some time, our view has been that if the Fed could hike 200bp at one meeting without significantly affecting market functioning, they would. So far, markets have been reluctant to price 75bp hikes, but stronger pricing for such a move would likely ease the path for the FOMC and participants could likely forge a consensus on such action quickly".
  • Fed enters Policy blackout at midnight tonight.