Cheaper, But Outright And Curve Levels Off Post-FOMC Extremes

Tsys come under light pressure as European participants filter in and begin to adjust to yesterday’s FOMC decision, which was headlined by the shift higher in the median dot for ’23, as the central bank left rates on hold.

• The latest round of softer than expected monthly economic activity data out of China and widely expected MLF cut from the PBoC did little to counter the cheapening impulse during Asia-Pac hours.
• That leaves the major cash Tsy benchmarks running 2.5-7.0bp cheaper as the curve bear flattens, with yesterday’s yield highs intact across the curve, while TYU3 has shown below its overnight base, but failed to test yesterday’s post-FOMC lows.
• The 2-/10- & 5-/30-Year yield curves are a little off yesterday’s inverted extremes after tagging the deepest levels of inversion witnessed since the well-documented volatility derived from the banking sector in March.
• FOMC-dated OIS shows a cumulative 21.5bp of tightening over the next couple of meetings, leaving terminal rate pricing shy of the new Fed median dot. Beyond that, the strip only prices in ~7bp of rate cuts by year-end (vs. current terminal pricing).