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Fed Terminal Tops 5.685% In October

US TSYS
  • Short end rate futures remain weak in late trade, but off early overnight lows as Federal Reserve Chairman Powell had a modicum of success in tempering Tuesday's hawkish tones at today's testimony to Congress.
  • Chair Powell conceded earlier, the upcoming NFP Friday, CPI and PPI inflation metrics next week are "going to be important in our assessment," however, "we have not made any decision about the March meeting. We’re not on a preset path."
  • Treasury bonds lead the initial rally (traded off highs after a weak Treasury 10Y note auction re-open tailed: 3.985% high yield vs. 3.955% WI) while short end rates still reflect higher expectations of 50Bp hike at next FOMC announcement on March 22.
  • Fed funds implied hike for Mar'23 at 42.4bp, May'23 cumulative 77.9bp to 5.357%, Jun'23 99.5bp to 5.573%. The trajectory of hikes slows to 108.4bp in July'23 to 5.663%.
  • Terminal rate via Fed Funds has climbed to 5.685% in Oct'23 vs. 5.695% high.
  • Additional metrics: Treasury 2Y yield tapped new 16 year high of 5.0801% overnight, 2s10s yield curve fell to new inverted low of -105.513 last seen in 1981 when Volcker was Chairman of the Federal Reserve.
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