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Fledgling Hawk MN Fed Kashkari Flexes Wings

US TSYS

Tsy futures back near where they started the day, mildly higher - well off early session highs after Philly Fed Mfg moved the needle for once. Multiple Fed speakers had net effect of deflating rate rally through the second half.

  • Tsy futures pared early gains after latest Philly Fed Mfg index topped estimate: +6.2 vs. -5.0 est (-12.3 prior read), while weekly claims come out at 250k vs. 264k est. Trading desks noted fast$, prop acct selling across the curve as Tsy futures receded to pre-open levels, 30YY slipped to 3.1029% low before rebounding to 3.1480% first half high.
  • Limited reaction to slightly weaker than expected Existing Home Sales (4.81M vs 4.86M est, MoM much weaker than expected at - 5.9% vs. - 5.1%, while U.S. Leading Index stronger than expected at -0.4% vs -0.5% est, -0.8% prior.
  • Mixed comments from SF Fed Daly on CNBC kicked things off: 50 or 75bp hike reasonable vs comments from Aug 11 (i.e. post US CPI miss) that 50bp was base case but open-minded on whether 75bp is needed should data evolve differently. Daly mirrored July minutes she didn't want to "overdo policy and find we've tightened the economy" more than needed. Daly effect less of a factor today then after CPI.
  • MN Fed Kashkari, however, reiterated need for more interest-rate increases to slow inflation boosts recession risks.
  • StL Fed Bullard: still sees the Fed needing to hike to 3.75-4% by year-end, but now also explicitly lends support to a third 75bp hike at the Sept FOMC.
  • KC Fed's George ('22 voter), a 50bp dissenter at the June but not July FOMC, offers a balanced, open tone behind how much further the hiking cycle will go.
  • Currently, 2-Yr yield is down 5.8bps at 3.2266%, 5-Yr is down 2.4bps at 3.0271%, 10-Yr is down 1.8bps at 2.8786%, and 30-Yr is down 1.3bps at 3.1381%.
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Tsy futures back near where they started the day, mildly higher - well off early session highs after Philly Fed Mfg moved the needle for once. Multiple Fed speakers had net effect of deflating rate rally through the second half.

  • Tsy futures pared early gains after latest Philly Fed Mfg index topped estimate: +6.2 vs. -5.0 est (-12.3 prior read), while weekly claims come out at 250k vs. 264k est. Trading desks noted fast$, prop acct selling across the curve as Tsy futures receded to pre-open levels, 30YY slipped to 3.1029% low before rebounding to 3.1480% first half high.
  • Limited reaction to slightly weaker than expected Existing Home Sales (4.81M vs 4.86M est, MoM much weaker than expected at - 5.9% vs. - 5.1%, while U.S. Leading Index stronger than expected at -0.4% vs -0.5% est, -0.8% prior.
  • Mixed comments from SF Fed Daly on CNBC kicked things off: 50 or 75bp hike reasonable vs comments from Aug 11 (i.e. post US CPI miss) that 50bp was base case but open-minded on whether 75bp is needed should data evolve differently. Daly mirrored July minutes she didn't want to "overdo policy and find we've tightened the economy" more than needed. Daly effect less of a factor today then after CPI.
  • MN Fed Kashkari, however, reiterated need for more interest-rate increases to slow inflation boosts recession risks.
  • StL Fed Bullard: still sees the Fed needing to hike to 3.75-4% by year-end, but now also explicitly lends support to a third 75bp hike at the Sept FOMC.
  • KC Fed's George ('22 voter), a 50bp dissenter at the June but not July FOMC, offers a balanced, open tone behind how much further the hiking cycle will go.
  • Currently, 2-Yr yield is down 5.8bps at 3.2266%, 5-Yr is down 2.4bps at 3.0271%, 10-Yr is down 1.8bps at 2.8786%, and 30-Yr is down 1.3bps at 3.1381%.