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BAX Futures Rally With Softer US Data

  • BAX futures have tried to retrace initial rallies seen with the US Empire miss and then the NAHB miss but still see implied yields 4-5.5bps lower out to mid-2024.
  • Part of the unwinding of each rally has been from local data coming in better than expected but they were still soft, with mfg sales better only after revisions and still falling on the month, whilst existing home sales still fell -5% M/M.
  • It sees the peak in the roughly implied policy rate at the upper end of the 3.25-3.5% range in the BAZ2 (OIS has a peak at 3.50% in Dec’22-Jan’23 meetings) from a current 2.5%, whilst the parallel shift in the curve sees just under 50bps of cuts priced for 2023 judging by BAZ2/BAZ3.

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