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Higher ahead of the FOMC meeting

BONDS
  • Core fixed income has moved higher ahead of the FOMC decision later but has moved off its highs following EZ HICP data. The headline HICP data was lower than expected (which initially saw some spikes higher) but core inflation was a tenth higher than expected and that led Bunds to reverse all of the moves higher they had seen in European hours.
  • This morning's PMI data had little impact on markets with Spanish and Italian manufacturing PMI data higher than expected with the market waiting for the inflation data.
  • Now the inflation data is out the way, focus will switch back to the FOMC. The dovish risks to this meeting appear at least partly priced in, including some expectations of Statement language acknowledging decelerating inflation, or a clear signal that the end of the hiking cycle is near. However, there are many ways Powell could re-emphasize the FOMC’s view that the job is not nearly done yet. Powell will again steer attention away from the pace of hikes and toward the terminal level (which the FOMC envisages as higher than the market does), while pushing back against rate cut pricing for H2 2023. For more see the full MNI Fed Preview here.
  • TY1 futures are up 0-11 today at 114-27+ with 10y UST yields down -3.6bp at 3.475% and 2y yields down -1.8bp at 4.185%.
  • Bund futures are up 0.21 today at 137.03 with 10y Bund yields down -1.1bp at 2.272% and Schatz yields up 0.2bp at 2.635%.
  • Gilt futures are up 0.23 today at 104.74 with 10y yields down -2.8bp at 3.302% and 2y yields down -2.7bp at 3.406%.
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