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Fed Gov Waller Left Mark on Short End, Rate Cut Projections Soft

US TSYS
  • Treasury were modestly mixed into the early close: pit at 1300ET, cash closes an hour later at 1400ET while Globex closes at normal time of 1700ET. Carry-over weakness in the short end after Fed Gov Waller said late Wednesday the Fed should wait a "couple months" to get a better understanding of the trajectory of inflation. That said, Waller still expects the central bank to begin reducing the target range for the federal funds rate this year.
  • Yields 5bp higher in the short end, curves bear flattening: 2s10s -4.182 at -42.381.
  • Projected rate cut pricing retreats (post-Waller): May 2024 at -9.8bp from -15% late Wednesday w/ cumulative -2.5bp at 5.302%; June 2024 -56.9% vs. -63.1% w/ cumulative rate cut -16.7bp at 5.159%. July'24 cumulative at -26.4bp vs. -30.06bp, Sep'24 cumulative -43.9bp from -49.3bp.
  • Mixed data did help rates pare losses on the day: TYM4 hitting session high of 110-28.5 just ahead of noon. Surprise March final UofM consumer survey release showed softer inflation expectations. Real GDP was revised up by 0.2pp in the final reading for 4Q23, with quarterly annualized growth of 3.4%. The internals of the revision were broad-based, including a very strong gross domestic income reading. The Chicago Business BarometerTM, produced with MNI declined 2.6 points to 41.4 in March.
  • Despite tomorrow's close, there are several data points and Fed speakers scheduled: Personal Income/Spending, PCE Deflator, Adv Trade Balance, Retail/Wholesale Inventories, KC Fed Services. SF Fed Daly open remarks at policy conf at 1115ET while Fed Chairman Powell speaks at a moderated discussion at 1130ET.
  • US markets resume normal trade Monday (Globex opens Sunday evening at 1800ET) while Europe markets closed for Easter Monday.
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