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Flatter Curves Post-FOMC

US TSYS

TYZ2 deals around late NY levels.

  • This comes after post-FOMC twist flattening, which saw benchmark Tsys finish 8bp cheaper to 7bp richer on Wednesday, with the curve pivoting around 7s. The 5-/30-Year spread hit the deepest levels of inversion witnessed in the current cycle and the 2-/10-Year spread moved back towards its own cycle lows.
  • This shift higher in the median point of the SEP’s ’23 dots was slightly above market pricing for the terminal rate & more comfortably above sell-side consensus, which saw a modest upward adjustment in terminal rate pricing (matching the ’23 median dot at 4.5%). A fairly even split in the SEP between 100/125bp of tightening during the remainder of ’22 and a relatively aggressive round of rate cuts back towards, but still above, neutral levels in the first round of ’25 dot projections tempered the initial hawkish reaction. Powell also stressed data-dependence.
  • This saw yields peel away from session highs as the curve twist flattened, with the previously outlined uptrend channel in 10-Year yields intact.
  • Asia-Pac participants will digest the latest FOMC decision amidst a lower liquidity backdrop (Australia out on holiday), with the latest BoJ decision providing the key regional risk event (no changes expected to the Bank’s major monetary policy settings).
  • Further out, Thursday will see weekly jobless claims data and the Kansas City Fed m’fing index reading, while the BoE decision headlines a busy global central bank slate.
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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