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Fed Implied Rates Holding Nudge Higher And SOFR Cuts Back At Pre CPI Levels

  • Fed Funds implied rates are holding the intraday nudge higher after upward revisions to IMF GDP and core inflation projections landed alongside decent beats for US house price growth.
  • Cumulative hikes from 5.08% effective: 24.5bp for tomorrow (unch), +30bp for Sep (+1bp) and +36bp to 5.44% terminal in Nov (+1bp).
  • Cuts from Nov terminal: 4bp to Dec’23, 56bp to Jun’24 and 127bp to Dec’24, little changed from levels at the start of the US session with a mostly parallel shift higher since then.
  • SOFR meanwhile sees an increasingly large sell-off along the curve, with 2023 contracts -0.01/-0.02, building to -0.04 for SFRM4, -0.07 for SFRZ4 and -0.09 for SFRM5. The SFRU3/Z4 spread of -131bps is the smallest in absolute terms since Jul 7’s close having fully reversed the US CPI hit yesterday at -136.5bps.

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