Focus on the Fed

Bund futures are only marginally changed this morning as the market looks ahead to the FOMC meeting later today.

• As we point out in the MNI Fed Preview, the FOMC is likely to begin "talking about talking" about tapering at its June meeting but Chair Powell will make clear that the FOMC is not yet ready to move any further than that on reducing asset purchases. The 2023 Fed funds rate dots in the SEP are likely to show further support for a hike, with a good chance the median rises. The outlook for "transitory" inflation will also be eyed in the projections. The Fed is likely to hold off on tweaking the IOER and ON RRP rates (though prevailing analyst consensus is that this is a very close call).
• Gilts opened a bit weaker this morning after strong inflation data saw headline CPI climb above 2.0% for the first time since July 2019 (3 tenths above expectations at 2.1%). Core CPI saw an even larger move, 5 tenths above expectations at 2.0% for the first time since August 2018. RPI was in line with expectations at 3.3%Y/Y.
• TY1 futures are up 0-1 today at 132-18 with 10y UST yields down -0.2bp at 1.491% and 2y yields unch at 0.164%.
• Bund futures are up 0.08 today at 172.40 with 10y Bund yields down -0.5bp at -0.237% and Schatz yields down -0.3bp at -0.680%.
• Gilt futures are up 0.01 today at 127.65 with 10y yields up 0.1bp at 0.759% and 2y yields up 1.1bp at 0.086%.