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Bonds Near Highs After Fed Delivers Expected 25Bp Hike

US TSYS
  • Treasury futures extending highs after the bell, yield curves steeper as short end rates outpace bonds after the Federal Reserve delivered a second consecutive and widely anticipated 25bp hike. Though signaling additional hikes, the Fed statement was largely deemed dovish in it's efforts to stem inflation.
  • After an initial knee-jerk rally and price pull-back, Tsys rebounded as Chairman Powell stressed the Fed is "no longer state that we anticipate that ongoing rate increases will be appropriate to quell inflation. Instead, we now anticipate some additional policy firming may be appropriate."
  • Yield curves forged steeper with 2s10s hitting -45.799 high before settling back to around -50.164 with short end outperforming, TUM3 +15 at 103-18.
  • Implied hikes evaporate despite the Fed flagging additional 25bp hikes. Snapshot of current levels after the second consecutive 25bp hike:
  • Fed funds implied hike for May'23 11.1, Jun'23 cumulative 0.3bp to 4.815%, Jul'23 slips to -20.0bp to 4.623%. Fed Terminal currently at 4.925% in May'23. Implied rate cuts accelerate by year end with Dec'23 cumulative -66.2 at 4.150.
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