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Fed Gov Bowman Remains Hawkish, Tsy Curves Bull Flatten

US TSYS
  • Tsy futures are drifting near late session highs after the bell, curves flatter with the short end underperforming (2Y10Y -4.508 at -34.067). Light on data, markets showed muted reaction to multiple Fed speakers on the day.
  • Fed Gov. Bowman (voter) maintained her hawkish stance in prepared remarks at the 2023 Ohio Bankers League (full here).
  • Bowman supported the FOMC’s decision last week to hold rates unchanged but continues to expect that the Fed will need to hike further “to bring inflation down to our 2 percent target in a timely way”.
  • On inflation: "Some components of core services inflation have picked up, and I see a continued risk that core services inflation remains stubbornly persistent. In my view, there is also a risk that higher energy prices could reverse some of the progress made to bring overall inflation down."
  • Despite this afternoon's hawkish Fed speak, projected rate cut chance into early 2024 gains some ground: December holds at 2.4bp at 5.347%, January 2024 cumulative 3.9bp at 5.368%, while March 2024 pricing in -28.1% chance of a rate cut (-27.6 this morning) with cumulative at -3.1bp at 5.292%, May 2024 cumulative -15bp at 5.174%. Fed terminal at 5.365% in Feb'24.
  • Meanwhile, Treasury futures holding narrow range near session highs after $48B 3Y note auction (91282CJK8) largely as expected 4.701% high yield vs. 4.702% WI; 2.67x bid-to-cover vs. 2.56x prior month.
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