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BONDS: Weakness Extends As NY Reacts

BONDS
BulletMarketsFixed Income Bullets

Core global FI markets have seen an extension of their London morning sell off as NY participants adjust to moves seen in Europe.

  • U.S. & German curves bear steepen.
  • Bund futures through initial support, next bearish target at the 20-day EMA (134.28).
  • Gilts bear flatten following the in-line CPI data. That move seems to represent an unwind of long positioning in STIRS and the front end of the gilt curve.
  • A move away from session lows in crude will have weighed on bonds at the margin.
  • Broader positioning, particularly in STIR markets and the front end of bond curves, still seems long.
  • Focus remains centred on this evening’s FOMC, with an unusual balance in market pricing seen heading into the event (~41bp of cuts priced into Fed funds futures).
  • Our macro team leans towards a 50bp move.
  • They also note that the new Dot Plot is likely to reflect uncertainty over the path forward, starting with anywhere from 75bp to 125bp of cuts signalled in the 2024 Fed funds median, depending on what the FOMC opts for on Wednesday.
  • The end-2025 rate is likely to show an even wider dispersion, reflecting the uncertainty over the path ahead, but a general consensus that the FOMC would like to return policy to neutral levels fairly quickly.
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Core global FI markets have seen an extension of their London morning sell off as NY participants adjust to moves seen in Europe.

  • U.S. & German curves bear steepen.
  • Bund futures through initial support, next bearish target at the 20-day EMA (134.28).
  • Gilts bear flatten following the in-line CPI data. That move seems to represent an unwind of long positioning in STIRS and the front end of the gilt curve.
  • A move away from session lows in crude will have weighed on bonds at the margin.
  • Broader positioning, particularly in STIR markets and the front end of bond curves, still seems long.
  • Focus remains centred on this evening’s FOMC, with an unusual balance in market pricing seen heading into the event (~41bp of cuts priced into Fed funds futures).
  • Our macro team leans towards a 50bp move.
  • They also note that the new Dot Plot is likely to reflect uncertainty over the path forward, starting with anywhere from 75bp to 125bp of cuts signalled in the 2024 Fed funds median, depending on what the FOMC opts for on Wednesday.
  • The end-2025 rate is likely to show an even wider dispersion, reflecting the uncertainty over the path ahead, but a general consensus that the FOMC would like to return policy to neutral levels fairly quickly.