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Evans Helps Continue Today’s Bear Flattening

US TSYS
  • Front-end Tsys moved lower as Chicago Fed’s Evans indicated he sees potential for rates going above his estimate of neutral in 2023, when he becomes a voter.
  • After somewhat conflicting initial headlines, it seems the path he envisages before then is to take the Fed Funds target to 2.25-2.5% by year-end – his estimate of neutral – before taking stock of the economy.
  • He notes particular uncertainty when looking beyond that (too soon to think much past neutral rate) but nevertheless expects rates to go above neutral.
  • This has helped 2Y yields increase back towards highs seen early in the US session (+9.5bps on the day) with a more modest response in the 10Y yields (+4.5bps), with 2s10s trimmed to 36bps after consistently steepening for the past two weeks.

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