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Curve Bull Steepening With Fed Awaited

US TSYS

The FOMC decision is in focus Wednesday, with a 75bp hike fully priced but the path ahead seen slightly more moderate than it looked yesterday.

  • Mar through Dec '23 rates contracts are outperforming, with Fed funds now pricing a peak Funds rate <3.9% in mid-2023, a quarter point lower than early Tuesday's peak and down 18bp implied on the day.
  • Whether that is a sudden reappraisal of the Fed's outlook or merely reverting from oversold conditions, the Tsy curve has bull steepened: the 2-Yr yield is down 13.3bps at 3.2934%, 5-Yr is down 11.8bps at 3.4687%, 10-Yr is down 9.4bps at 3.3792%, and 30-Yr is down 4.7bps at 3.3778%.
  • MNI's outlook for the 2023 Median Dot today is probably more dovish than analyst consensus and certainly lower than market pricing - our preview (updated Tuesday) is available here.
  • Most early Weds focus has been on the eurozone, where the ECB are holding an unscheduled meeting to address market volatility (helping risk assets bounce, weakening the USD).
  • Retail sales and Empire Manufacturing are the data highlights at 0830ET, with the FOMC decision out at 1400ET.
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