Cautious Risk Appetite Gains Momentum

US rates trade sideways through the second half, finishing near session lows, yield curves steeper with short end outperforming. Early risk-on tone gained momentum in late morning trade as stocks climbed to two-week highs: SPX eminis back to June 13 levels, ESU2 currently at 3899.0 (+99.25) vs. post FOMC low of 3649.00. DJIA +718 (2.34%) at 31397.09; Nasdaq +303 (2.7%) at 11536.68.

• Tsys opened with a modest risk-on tone on firmer stocks, pared losses/traded steady to mildly higher after U-Mich 5-10Y inflation exp revised lower to 3.1%, home sales strong +10.7% to 696k - much better than estimated 590k.
• Short end Eurodollar futures spiked just prior to U-Mich data: EDU2 gapped +0.095 to 96.785 a minute before the data release before tapping 96.79 briefly after some two-way flow. Currently +0.060 at 96.75, dragging EDZ2 0.060 higher as more aggressive rate hike pricing into year end cools slightly.
• Meanwhile, Fed monetary tightening will slow the economy but is unlikely to push it into recession because household wealth is high and business activity is strong, St. Louis Fed President James Bullard said Friday.
• "I think it's a little early to have this debate about recession probabilities in the U.S.," Bullard told an event sponsored by UBS. "We'll slow down to a trend pace of growth as opposed to below trend."
• Reminder, shortened work week next week (early Fri close, Mon holiday for 4th of July), Tsys will have two bill and 2 note auctions Monday:
  • US Tsy $46B 2Y note and $42B 26W bill auctions at 1130ET
  • US Tsy $47B 5Y Note and $45B 13W bill auctions at 1300ET