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Data Continues to Temper Rate Cut Expectations

US TSYS
  • Treasury futures mostly weaker, near midday lows after the bell, curves bear steepening with the short end holding steady (TUH4 102-21.88). Off Wednesday's four month highs, the 2s10s is still +4.236 after the bell at -21.865.
  • Large curve Block underscored the move: +24,980 TUH4 102-22.25, buy through 102-21.88 post time offer, DV01 $954,600 vs. -15,135 TYH4, 111-06.5, post time bid, DV01 $985,600.
  • Treasury futures reversed early gains/gapped lower after lower than expected Initial Jobless Claims (187k vs 205k est), Continuing Claims (1.806M vs. 1.843M est) -- not to mention higher than expected Building Permits (1.495M vs 1.476M est) and Housing Starts (1.460M vs 1.425M est, prior down-revised to 1.525M from 1.560M).
  • Chicago Business BarometerTM, produced with MNI, was revised up to 47.2 in December from 46.9, as result of the annual seasonal adjustment recalculation.
  • Mar'24 10Y futures hit 111-04.5 low (-9) on the day, briefly through initial technical support of 111-06+ (Low Jan 05) before rebounding to 111-07. 10Y yield firmly above 4% to 4.1516% high on the day.
  • Fed speak: Philly Fed Harker said he expects inflation to fall steadily toward 2% and labor market tightness to continue to ease, suggesting heightened chances of a soft landing. Atlanta Federal Reserve President Raphael Bostic Thursday repeated he expects policymakers to begin cutting interest rates in the third quarter, but added if there is a further accumulation of soft inflation data then cuts could begin sooner.
  • Projected rate cuts held steady to mixed: January 2024 cumulative -0.6bp at 5.323%, March 2024 chance of rate cut -52.4% vs. -58.2% early Thursday w/ cumulative of -13.7bp at 5.192%, May near steady at -88.4% w/ cumulative -35.8bp at 4.970%. June still pricing in the first 25bp cut with cumulative -61.9bp at 4.710%. Fed terminal at 5.32% in Feb'24.
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