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July Minutes More Hawkish Than Anticipated

US TSYS
  • US rates markets finishing broadly lower/near lows as participants continued to digest the more hawkish than anticipated FOMC minutes as most policymakers see upside risk to inflation.
  • “Most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy” However, two officials favored holding rates steady (or could have supported such a proposal) and “several” saw a need to consider the risk of overtightening financial conditions.
  • Sporadic buying reported, however, while WSJ economist Timiraos writes "Some Fed Officials Are Turning Cautious about Raising Rates Too High".
  • Treasury futures started the day on the back foot: see-sawing around pre-data lows, weaker Building Permits (1.442M vs. 1.468M est; MoM (0.1% vs. 1.5% est), stronger Housing Starts (1.452M vs 1.450M est; MoM (3.9% vs. 1.1% est). Treasury futures extend lows after strong IP driven by autos and utilities.
  • Front month Sep'23 10Y futures mark 109-13.5 low (-11), near initial technical support at 109-11.5 (Low Aug 15), followed by 109-10.5 (Low Nov 4 2022, cont). Below that, major technical support at 108-26. (Low Oct 21 2022, cont).
  • Curves maintain steeper profiles with short end rates outperforming, 3M10Y curve +6.382 at -118.489, 2Y10Y +3.566 at -71.193.
  • Rate hike projections through year end are steady to mildly higher, Sep 20 FOMC is 11% w/ implied rate change of +2.7bp to 5.356%. November cumulative of +10.6bp at 5.435, December cumulative of 9.1bp at 5.420%. Fed terminal holds at 5.43% in Nov'23.
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