Curve Twist Steepens, Fed Rate Hike Expectations Pared

TYM3 deals at 113-07+, +0-03, with a 1-11 range observed on volume of ~412k. To recap early events in Asia, the Fed have created a new funding operation to stem the risk of a run on deposit taking institutions, while the Fed, US Treasury and FDIC noted in a joint statement that SVB depositors would be made whole.

• Cash tsys sit 14bps richer to 5bps cheaper across the major benchmarks, the curve has twist steepened pivoting on 20s.
• The rally in 2s adds to the largest 2 day gain lodged since the GFC.
• Tsys futures initially gapped higher at the re-open as Asia participants reacted to Friday's price action and the lack of immediate resolution re SVB.
• The initial move reversed on headlines that the Fed has announced a new emergency bank term funding scheme. Fed, US Treasury and FDIC noted in a joint statement that SVB depositors would be made whole, further adding further pressure.
• Tsys firmed off session lows as, on the sell side, Goldman Sachs updated their call for the March Fed meeting. They no longer look for a hike from the Fed later this month although they leave their 25bp hike calls for the May, June & July meetings pencilled in, albeit with considerable uncertainty cited.
• Fed-dated OIS has 23bps of tightening for next week’s meeting, after pricing ~43.5bp of tightening at one point last week. Pricing for the terminal rate is now at a touch below 5.1% now seen in June, trimming ~20bps today. There are ~43bps of cuts priced for H2 2023.
• There is a thin data calendar in Europe today, the session will be dominated by the evolving SVB situation. Tomorrow's February CPI, flagged by Fed Chair Powell as a key input into this month's FOMC decision, headlines the week's docket.