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Debt Ceiling Headline Risk Overshadows Powell/Bernanke Policy Forum

US TSYS
Treasury futures look to finish weaker for the most part, near the middle of a moderate session range after some late morning volatility tied to debt ceiling headlines.
  • Rate futures extended lows after (10s marked 113-11 low, -18.5, yield rising to 3.7186% high) on carry-over optimism over the last 36 hours that a debt ceiling negotiations to avoid a default were close to an agreement.
  • That was until late morning when headlines hit that GOP negotiators walked out of debt talks with no follow-up scheduled. Punchbowl News' Jake Sherman tweeted ""We're at an impasse," a source involved with the talks tells me. Not one issue, but multiple issues have proven problematic, I am told."
  • The impasse spurred a fast risk-off move as Treasury futures rallied (10s bounced to 114-01.5) and stocks reversed modest gains: SPX falling to 4192.0 low after marking 4227.0 high in early trade.
  • The headlines completely overshadowed headlines of Fed Chairman Powell amid former chair Bernanke at a policy forum scheduled at the same time. Federal Reserve policy is already restrictive, allowing caution about whether more tightening is needed given the lagged effects of past rate hikes, Chair Powell said.
  • "We've come a long way in policy tightening and stance of policy is restrictive and we face uncertainty about the lagged effects our tightening so far and about the extent of credit tightening from recent banking stresses," he said.
  • Markets settled near midrange through the second half, decent overall volumes (TYM>1.75M) tied to a pick-up in Jun/Sep quarterly futures rolls. Focus turns to May 3 FOMC minutes release next Wednesday.
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