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Market Roundup: Hawkish Fed Speak Moderates

US TSYS
Off early lows, Tsys currently near steady (5s and 10s) to mixed, yield curves flatter as short end rates continue to underperform as central bank policy messaging gets a little uncertain after Fed Governor Michelle Bowman said "Your guess as good as mine as to what happens next in the economy."
  • Tsys opened weaker, carry-over from Thu's hawkish Fed comments from Mester and Bullard (don't count out 50bp hike if necessary), but whipsawed off lows after ECB Villeroy comments (ECB in restrictive territory, action after March "less urgent").
  • Rates settled into higher range by midmorning after Richmond Fed Barkin said steady quarter-point interest rate increases until inflation is on a sustainable path back to 2% provides the best flexibility for the Fed to respond to incoming data.
  • Fed funds implied hike for Mar'23 at 28.2bp, May'23 cumulative 52.0bp to 5.101%, Jun'23 66.7bp to 5.247%, terminal at 5.295% in Aug'23.
  • Second half trade rather quiet ahead an extended holiday weekend, markets closed Monday for Presidents Day holiday, data resumes Tuesday. No scheduled Fed speakers ahead Feb FOMC minutes release on Wednesday at 1400ET.

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