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Bear Steeper With Powell In Focus Tomorrow Before FOMC Blackout

  • Cash Tsys sit 5.5-8.5bp cheaper on the day, led by 10s but with the very long end lately extending session lows. It’s a move that reverses yesterday’s rally after yesterday's month-to-date (and for 2s, multi-month) lows in yields.
  • There has been a deluge of data today, none of it providing enough of a catalyst to promote an extension of the recent large rally. For instance, core PCE was close to expected at 0.16% M/M but the distribution of known Q3 downward revisions were about as hawkish as they could have been and continuing claims appeared to have a significant seasonal adjustment skew that makes the underlying data less worrisome than headlines suggest. It was then followed by a much stronger than expected MNI Chicago PMI.
  • Long positioning, both in terms of recent biases on the SOFR strip and in Tsys had narrowed the scope for fresh capital to be put to work and Williams (permanent voter) and Daly (’24 voter) offered some pushback against rate cut excitement after Waller’s dovish musings on Tuesday.
  • TYH4 at 109-28 sits off the day’s low of 109-23+, for a sizeable retracement off yesterday’s high of 110-15+ to dent the extension of the bullish theme. It’s doesn’t yet trouble support at 109-05+ (Nov 28 low).
  • Near-term FOMC pricing is similar to pre-data levels, with a first cut priced for the May FOMC and close to 50/50 it comes in March instead. After that it builds to a cumulative 112bp of cuts through 2024 vs 121bp shortly ahead of the data as implied rates slipped pre-release.
  • Tomorrow sees initial data focus on ISM manufacturing, of added note after today’s Chicago PMI strength and other manufacturing surveys also pointing to some upside risk, before Fed Chair Powell headlines the docket in a fireside chat at 1100ET including text. The FOMC media blackout begins Friday midnight ET.

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