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Late Market Summary: Dovish Take on Expected BOC 25Bp Hike

US TSYS

Whipsaw action in US FI markets Wednesday, finishing mildly higher, near middle of session range. Early volatility, rates rallied after Bank of Canadas 25bp hike to 4.5% and dovish inflation language. “Slower demand growth, combined w/ improvements in the supply chain, lead the economy into modest excess supply in 2023” MPR.

  • BOC-tied support evaporated aby midmorning, yield curves bouncing off deeper inversion (and holding): 2s10s +8.092 at -68.087 (-77.338 low).
  • While monthly core inflation suggests core has peaked rather than early indicator price pressures may be losing momentum helped drive early bid, reversal less a function of active sellers than support has waned following BOC Macklem's "conditional" pause comment.
  • "Overall, we view the risks around our inflation forecast as balanced, but with inflation still well above our target, we continue to be more concerned about the upside risks. If these upside risks materialize, we are prepared to raise interest rates further."
  • Trading desks reported prop and fast$ buying 10s as sector climbs back to steady/mildly higher, pre-auction short sets in 5s ahead today's $43B 5Y auction. Tsy futures gain slightly after strong $43B 5Y note auction (91282CGH8) stops through: 3.530% high yield vs. 3.555% WI; 2.64x bid-to-cover vs. 2.46x the prior month.
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Whipsaw action in US FI markets Wednesday, finishing mildly higher, near middle of session range. Early volatility, rates rallied after Bank of Canadas 25bp hike to 4.5% and dovish inflation language. “Slower demand growth, combined w/ improvements in the supply chain, lead the economy into modest excess supply in 2023” MPR.

  • BOC-tied support evaporated aby midmorning, yield curves bouncing off deeper inversion (and holding): 2s10s +8.092 at -68.087 (-77.338 low).
  • While monthly core inflation suggests core has peaked rather than early indicator price pressures may be losing momentum helped drive early bid, reversal less a function of active sellers than support has waned following BOC Macklem's "conditional" pause comment.
  • "Overall, we view the risks around our inflation forecast as balanced, but with inflation still well above our target, we continue to be more concerned about the upside risks. If these upside risks materialize, we are prepared to raise interest rates further."
  • Trading desks reported prop and fast$ buying 10s as sector climbs back to steady/mildly higher, pre-auction short sets in 5s ahead today's $43B 5Y auction. Tsy futures gain slightly after strong $43B 5Y note auction (91282CGH8) stops through: 3.530% high yield vs. 3.555% WI; 2.64x bid-to-cover vs. 2.46x the prior month.