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Flat ISM Mfg Spurs Rally With Powell Still To Come

  • Treasuries have rallied sharply with the surprise flat ISM mfg reading (yesterday's Chicago PMI strength likely created some asymmetrical skew in market reaction to a miss), with only limited paring of gains despite the strength in prices paid and new orders pushing higher (but still in contraction territory).
  • The belly leads the rally on the day, sitting 4.5-5bp richer at typing.
  • TYH4 lurched to a high of 110-10 (latest 110-07), remaining within yesterday’s range throughout.
  • Goolsbee (’23 voter) likely helps at the margin as well even if his tone remains at the dovish end of the FOMC spectrum (no evidence we’ve stalled at 3% inflation, on track to get to 2%).
  • There is now 16bp of cumulative cuts priced for March and two cuts with June (51bp cumulative), building to 120bp by end-2024.

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