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Fed Tapping Brakes on More Hikes

US TSYS
  • Cash Tsys resumed after extended Columbus Day holiday weekend Tuesday, 10Y yield -.1417 vs. last Friday's close at 4.6592%. Curves flattened with Bonds outperforming much of the session: 3M10Y -12.731 at -84.122, 2Y10Y -3.841 at -32.301.
  • Tsy futures bounced off session lows following positive comments by Atlanta Fed Bostic as he reaffirmed his view that the Fed's benchmark interest rate is high enough to get inflation under control without dragging the economy into recession.
  • Treasury futures pared gains after $46B 3Y note auction (91282CJC6) tailed: 4.740% high yield vs. 4.722% WI; 2.56x bid-to-cover vs. 2.75x prior month. The weak auction coupled with headlines the US is considering sending a second aircraft carrier to Israel spurred additional risk unwinds as stocks moved off midday highs.
  • MN Fed Pres Kashkari said after the bell the rise now in 10-year yield "is a bit perplexing; one story is it is higher-growth expectations. We are seeing higher long-term treasury yields, but not higher inflation expectations." Note, SF Fed Daly speaks at the Chicago Council on Global Affairs at 1800ET.
  • Rate hike projections into early 2024 held steady to slightly softer vs. late Monday: November steady at 14% (22.2% Mon morning vs. 30.5% late Fri) w/ implied rate change of +3.5bp to 5.364%, December cumulative of 7.5bp (vs. 8.2bp early Tue) at 5.404%, January 2024 5.9bp (vs. 6.4bp early Tue) at 5.387%.
  • Wednesday Data Calendar: PPI, Fed Speak, FOMC Sep Minutes.
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