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of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.
Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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Treasuries gave back some of their post-FOMC steepening with the front-end reluctant to overly retrace the initially hawkish reaction.
Declines for longer-dated benchmark yields on the day provided a headwind to the USD index, with the JPY the best performer after weakness prompted "deep concern" comments from officials.
Equities on the otherhand have benefited, surging today but with major indexes still in the red on the week after heavy losses following the FOMC announcement.
Treasuries have seen some downward pressure late in the session but hold onto gains for the day (albeit only just in the case of 2s).
Core PCE inflation was slightly softer than expected but still solid trend rates for supercore inflation appear to have helped anchor Fed rate expectations with markets only willing to pare so much of Wednesday’s reaction to a hawkish Fed.
Polymarket shows odds of a government shutdown as having tilted from 75% overnight to 45% currently.
Cash yields are 0.8-5.6bps lower, with the belly leading declines after being dragged higher by a particularly weak 5Y TIPS auction yesterday with a 6.7bp tail.
2s10s of 21.2bps (-3.8bp) has seen a sizeable pullback away from yesterday’s fresh ytd high of 28bps, potentially in profit taking for a successful week for steepeners.
10Y yields have topped out this week at 4.5923% (currently 4.158%), easily through the mid-Nov high of 4.50% for highs since May.
TYH5 trades at 109-01 having pulled back from an earlier high of 109-08+. It consolidates an increase away from support at 108-16+ (Dec 19 low) but hasn’t troubled resistance at 110-07+ (20-day EMA).
Fed Funds implied rates show 2bp of cuts for Jan, a cumulative 26bp for June and 39bp for Dec.
Next week sees Monday start with durable goods orders and new home sales, having been pulled forward from Tuesday.
Thursday's rate run reflected the Federal Reserve's rate cut this week, with effective Fed funds falling 25bp to 4.33% as expected. Secured rates saw a bigger drop, reflecting the 30bp fall in the offer rate on ON RRP.
SOFR rates fell by 2bp more than the 25bp funds range cut, with BGCR down 4bp more and TGCR 5bp more. While there may also be some idiosyncratic factors at play that don't make these rates a pure measure of passthrough, these are roughly the degrees of passthrough expected from the 5bp ON RRP adjustment n the short term. Over time, SOFR is seen down slightly further (3-5bp of adjustment).
However, EFFR is not seen as being heavily impacted, if at all, by the ON RRP cut.
Takeup of the Fed’s RRP facility extended its decline to a fresh recent low today, at $98bn falling below $100bn for the first time since Apr 2021. The number of counterparties increased by 1 to 40.
It follows the Fed's decision on Wednesday to lower the ON RRP offer rate by 30bp to 4.25%, vs the 25bp drop in the Fed funds rate (ie a 5bp relative adjustment). The implementation note said, "Setting this rate at the bottom of the target range for the federal funds rate is intended to support effective monetary policy implementation and the smooth functioning of short term funding markets."
It wasn't clear how much it would impact the actual takeup of the ON RRP facility, although a couple 33bn decline in two days is reasonable, nor did the FOMC mention that as an objective of the tweak.
If repeated in future days, the pullback bears watching. Funds moving from ON RRP to broader reserves could help delay the eventual end of QT, which some analysts see being announced as soon as the January meeting.
European yields fell Friday, led by Gilts which had underperformed badly throughout the week.
Equity weakness helped underpin global core FI in early trade. A softer-than-expected US PCE report helped Treasuries rally in the early European afternoon, helping extend the Bund and Gilt rally. European data had little impact: Eurozone flash consumer confidence and UK retail sales were weaker than expected, with German PPI a bit stronger.
The UK curve bull steepened, with Germany's curve shifting down largely in parallel.
10Y Gilt yields closed the week 10bp higher, versus 3bp for Bund; 2Y UK yields closed 4bp higher (reflecting a paring of expected BOE easing after UK CPI and labour market data and the impact of a hawkish Fed, and despite a more dovish BOE decision vote split than expected), whereas German Schatz yields fell 4bp.
Periphery spreads widened early, but narrowed in afternoon trade alongside a broader risk asset relief rally. BTPs marginally outperformed.
In issuance, Italy announced E330-350bln of bonds planned to be issued in 2025, down from E361bln in 2024. Meanwhile the BOE announced its APF sales schedule for Q1: all auctions will be bit smaller than in Q4-24 - but there was no gilt reaction.
Next week is unsurprisingly much thinner on the data/events front given the holidays, with some final Q3 GDP readings among the limited highlights, and no scheduled ECB / BoE speakers.
Closing Yields / 10-Yr EGB Spreads To Germany
Germany: The 2-Yr yield is down 2.1bps at 2.027%, 5-Yr is down 2.3bps at 2.089%, 10-Yr is down 2.1bps at 2.285%, and 30-Yr is down 1.6bps at 2.518%.
UK: The 2-Yr yield is down 7.7bps at 4.347%, 5-Yr is down 7.7bps at 4.29%, 10-Yr is down 6.9bps at 4.51%, and 30-Yr is down 6.4bps at 5.05%.
Italian BTP spread down 1bps at 116bps / Spanish down 0.8bps at 69.2bps
EUROPE OPTIONS: Lighter Rates Flow To Conclude Busy Week
Amid the modest dovish Fed repricing in the wake of the softer-than-expected US PCE data, the greenback extended session losses, gradually eroding some of the gains seen in the aftermath of the hawkish Fed meeting on Wednesday.
The downward trajectory for the US dollar was bolstered by an impressive recovery for major equity benchmarks, with e-mini S&P 500 futures rising around 2.7% above session lows, seen shortly before the data.
Price action has seen strong rallies for the likes of EURUSD and GBPUSD, with the latter recovering well from the post BOE weakness that saw the pair dip below the 1.25 handle. We are currently nearer to 1.26 as we approach the weekend close.
The Japanese yen is the best performer in the G10, with lower US yields boosting the JPY. USDJPY (-0.9%) declines today should be taken in relation to the impressive 2.75% advance over the Fed and BOJ meetings late Wednesday/early Thursday. Additionally, we had FinMin Kato come across the wires stating he was deeply concerned about FX moves, which was followed up by Chief FX Diplomat Mimura who also expressed deep concern around FX moves. Both officials stated action would be taken if FX moves were excessive.
Lower than expected retail sales data in Canada prompted CAD to relatively underperform, with USDCAD remaining around 1% higher on the week at 1.4360. Canadian GDP data headlines the Monday economic calendar. US consumer confidence will also cross.
ESH5 at 6017.50 is holding onto impressive gains today (+1.4%) but it still leaves the contract -1.8% lower on the week after Wednesday’s Fed-induced 3.1% slide. Gains are unusually similar across other major indices.
Polymarket shows odds of a government shutdown as having tilted from 75% overnight to 45% currently.
A session high of 6050.75 has easily seen clearance of resistance at 6008.80 (50-day EMA) but it’s remained below next resistance at 6074.86 (20-day EMA). Support meanwhile is seen at the earlier low of 5866.00.
10Y Treasury yields falling 4bps today has given some respite to real estate which leads gains with +2.3%, followed by IT (+1.8%) and financials (+1.7%). All 11 major sectors are in the green with consumer staples (+0.4%) and energy (+0.8%) lagging gains.
Today sees mixed strength for megacaps, led by Nvidia (+3.1% to leave it just +0.3% higher on the week). Weekly moves are even more mixed, ranging from Meta (-3.7%) and Microsoft (-1.8%) to Apple (+2.2%) and Alphabet (+1.4%).
E-mini comparison: S&P 500 +1.4%, Nasdaq 100 +1.5%, Dow Jones +1.4%, Russell 2000 +1.5%.
SUP 3: 5811.65 38.2% retracement of the Aug 5 - Dec 6 bull leg
SUP 4: 5784.00 Low Nov 4
A sharp sell-off in the S&P E-Minis contract on Wednesday highlights a possible short-term top. The contract has also traded lower, today. The move down this week has resulted in a breach of the 20- and 50-day EMAs. A continuation of the bear leg would open 5811.65, 38.2% of the Aug 5 - Dec 6 bull leg. Support at 5921.00, Nov 19 low, has been pierced. A clear break of it would strengthen a bearish threat. Initial resistance is 6008.80, 50-day EMA.
The FOMC decision and Summary of Economic Projections dominated proceedings this week, bringing with it multiple hawkish surprises.
Not only were the FOMC’s new rate and inflation projections raised more than expected but the Statement was more cautious, and there was even a surprise dissent against the well-anticipated 25bp rate cut. As Chair Powell put it in the press conference, the FOMC is “in a new phase in the process” of easing policy, and “from this point forward, it's appropriate to move cautiously and look for progress on inflation.”
Unlike many FOMC meetings, markets headed in a decisive direction upon the release of the decision, and Powell’s post-meeting commentary did nothing to stem the flow. Subsequent days admittedly have seen a paring of Wednesday’s sell-off although there’s still only one further 25bp cut fully priced for 2025.
In data, core PCE inflation surprised a touch lower at 0.115% M/M (expected 0.13-0.14) along with some mixed to weaker revisions. Recent trend rates of ~2.5% annualized are running under the 2.8% Y/Y which will give FOMC members at least some relief, but the supercore remains too high at 3.5% Y/Y.
GDP growth was revised higher to 3.0% annualized in Q3, with strong domestic demand, and signs of more of the same in Q4 tracking.
Jobless claims surprised lower, further supporting that notion that whilst the labor market is broadly cooling there aren’t sign of a significant deterioration.
First post-FOMC Fedspeak: Hammack explains her dissent as a “close call”, Daly “very comfortable” with new 2025 median dot of two cuts for the year, Williams sees policy “somewhat” restrictive and Goolsbee now sees a slightly shallower rate path in 2025.
Sign up now for free trial access to this content.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.
Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
MNI (LONDON)
MNI (NEW YORK) - HIGHLIGHTS:
Treasuries gave back some of their post-FOMC steepening with the front-end reluctant to overly retrace the initially hawkish reaction.
Declines for longer-dated benchmark yields on the day provided a headwind to the USD index, with the JPY the best performer after weakness prompted "deep concern" comments from officials.
Equities on the otherhand have benefited, surging today but with major indexes still in the red on the week after heavy losses following the FOMC announcement.
Treasuries have seen some downward pressure late in the session but hold onto gains for the day (albeit only just in the case of 2s).
Core PCE inflation was slightly softer than expected but still solid trend rates for supercore inflation appear to have helped anchor Fed rate expectations with markets only willing to pare so much of Wednesday’s reaction to a hawkish Fed.
Polymarket shows odds of a government shutdown as having tilted from 75% overnight to 45% currently.
Cash yields are 0.8-5.6bps lower, with the belly leading declines after being dragged higher by a particularly weak 5Y TIPS auction yesterday with a 6.7bp tail.
2s10s of 21.2bps (-3.8bp) has seen a sizeable pullback away from yesterday’s fresh ytd high of 28bps, potentially in profit taking for a successful week for steepeners.
10Y yields have topped out this week at 4.5923% (currently 4.158%), easily through the mid-Nov high of 4.50% for highs since May.
TYH5 trades at 109-01 having pulled back from an earlier high of 109-08+. It consolidates an increase away from support at 108-16+ (Dec 19 low) but hasn’t troubled resistance at 110-07+ (20-day EMA).
Fed Funds implied rates show 2bp of cuts for Jan, a cumulative 26bp for June and 39bp for Dec.
Next week sees Monday start with durable goods orders and new home sales, having been pulled forward from Tuesday.
Thursday's rate run reflected the Federal Reserve's rate cut this week, with effective Fed funds falling 25bp to 4.33% as expected. Secured rates saw a bigger drop, reflecting the 30bp fall in the offer rate on ON RRP.
SOFR rates fell by 2bp more than the 25bp funds range cut, with BGCR down 4bp more and TGCR 5bp more. While there may also be some idiosyncratic factors at play that don't make these rates a pure measure of passthrough, these are roughly the degrees of passthrough expected from the 5bp ON RRP adjustment n the short term. Over time, SOFR is seen down slightly further (3-5bp of adjustment).
However, EFFR is not seen as being heavily impacted, if at all, by the ON RRP cut.
Takeup of the Fed’s RRP facility extended its decline to a fresh recent low today, at $98bn falling below $100bn for the first time since Apr 2021. The number of counterparties increased by 1 to 40.
It follows the Fed's decision on Wednesday to lower the ON RRP offer rate by 30bp to 4.25%, vs the 25bp drop in the Fed funds rate (ie a 5bp relative adjustment). The implementation note said, "Setting this rate at the bottom of the target range for the federal funds rate is intended to support effective monetary policy implementation and the smooth functioning of short term funding markets."
It wasn't clear how much it would impact the actual takeup of the ON RRP facility, although a couple 33bn decline in two days is reasonable, nor did the FOMC mention that as an objective of the tweak.
If repeated in future days, the pullback bears watching. Funds moving from ON RRP to broader reserves could help delay the eventual end of QT, which some analysts see being announced as soon as the January meeting.
European yields fell Friday, led by Gilts which had underperformed badly throughout the week.
Equity weakness helped underpin global core FI in early trade. A softer-than-expected US PCE report helped Treasuries rally in the early European afternoon, helping extend the Bund and Gilt rally. European data had little impact: Eurozone flash consumer confidence and UK retail sales were weaker than expected, with German PPI a bit stronger.
The UK curve bull steepened, with Germany's curve shifting down largely in parallel.
10Y Gilt yields closed the week 10bp higher, versus 3bp for Bund; 2Y UK yields closed 4bp higher (reflecting a paring of expected BOE easing after UK CPI and labour market data and the impact of a hawkish Fed, and despite a more dovish BOE decision vote split than expected), whereas German Schatz yields fell 4bp.
Periphery spreads widened early, but narrowed in afternoon trade alongside a broader risk asset relief rally. BTPs marginally outperformed.
In issuance, Italy announced E330-350bln of bonds planned to be issued in 2025, down from E361bln in 2024. Meanwhile the BOE announced its APF sales schedule for Q1: all auctions will be bit smaller than in Q4-24 - but there was no gilt reaction.
Next week is unsurprisingly much thinner on the data/events front given the holidays, with some final Q3 GDP readings among the limited highlights, and no scheduled ECB / BoE speakers.
Closing Yields / 10-Yr EGB Spreads To Germany
Germany: The 2-Yr yield is down 2.1bps at 2.027%, 5-Yr is down 2.3bps at 2.089%, 10-Yr is down 2.1bps at 2.285%, and 30-Yr is down 1.6bps at 2.518%.
UK: The 2-Yr yield is down 7.7bps at 4.347%, 5-Yr is down 7.7bps at 4.29%, 10-Yr is down 6.9bps at 4.51%, and 30-Yr is down 6.4bps at 5.05%.
Italian BTP spread down 1bps at 116bps / Spanish down 0.8bps at 69.2bps
EUROPE OPTIONS: Lighter Rates Flow To Conclude Busy Week
Amid the modest dovish Fed repricing in the wake of the softer-than-expected US PCE data, the greenback extended session losses, gradually eroding some of the gains seen in the aftermath of the hawkish Fed meeting on Wednesday.
The downward trajectory for the US dollar was bolstered by an impressive recovery for major equity benchmarks, with e-mini S&P 500 futures rising around 2.7% above session lows, seen shortly before the data.
Price action has seen strong rallies for the likes of EURUSD and GBPUSD, with the latter recovering well from the post BOE weakness that saw the pair dip below the 1.25 handle. We are currently nearer to 1.26 as we approach the weekend close.
The Japanese yen is the best performer in the G10, with lower US yields boosting the JPY. USDJPY (-0.9%) declines today should be taken in relation to the impressive 2.75% advance over the Fed and BOJ meetings late Wednesday/early Thursday. Additionally, we had FinMin Kato come across the wires stating he was deeply concerned about FX moves, which was followed up by Chief FX Diplomat Mimura who also expressed deep concern around FX moves. Both officials stated action would be taken if FX moves were excessive.
Lower than expected retail sales data in Canada prompted CAD to relatively underperform, with USDCAD remaining around 1% higher on the week at 1.4360. Canadian GDP data headlines the Monday economic calendar. US consumer confidence will also cross.
ESH5 at 6017.50 is holding onto impressive gains today (+1.4%) but it still leaves the contract -1.8% lower on the week after Wednesday’s Fed-induced 3.1% slide. Gains are unusually similar across other major indices.
Polymarket shows odds of a government shutdown as having tilted from 75% overnight to 45% currently.
A session high of 6050.75 has easily seen clearance of resistance at 6008.80 (50-day EMA) but it’s remained below next resistance at 6074.86 (20-day EMA). Support meanwhile is seen at the earlier low of 5866.00.
10Y Treasury yields falling 4bps today has given some respite to real estate which leads gains with +2.3%, followed by IT (+1.8%) and financials (+1.7%). All 11 major sectors are in the green with consumer staples (+0.4%) and energy (+0.8%) lagging gains.
Today sees mixed strength for megacaps, led by Nvidia (+3.1% to leave it just +0.3% higher on the week). Weekly moves are even more mixed, ranging from Meta (-3.7%) and Microsoft (-1.8%) to Apple (+2.2%) and Alphabet (+1.4%).
E-mini comparison: S&P 500 +1.4%, Nasdaq 100 +1.5%, Dow Jones +1.4%, Russell 2000 +1.5%.
SUP 3: 5811.65 38.2% retracement of the Aug 5 - Dec 6 bull leg
SUP 4: 5784.00 Low Nov 4
A sharp sell-off in the S&P E-Minis contract on Wednesday highlights a possible short-term top. The contract has also traded lower, today. The move down this week has resulted in a breach of the 20- and 50-day EMAs. A continuation of the bear leg would open 5811.65, 38.2% of the Aug 5 - Dec 6 bull leg. Support at 5921.00, Nov 19 low, has been pierced. A clear break of it would strengthen a bearish threat. Initial resistance is 6008.80, 50-day EMA.
The FOMC decision and Summary of Economic Projections dominated proceedings this week, bringing with it multiple hawkish surprises.
Not only were the FOMC’s new rate and inflation projections raised more than expected but the Statement was more cautious, and there was even a surprise dissent against the well-anticipated 25bp rate cut. As Chair Powell put it in the press conference, the FOMC is “in a new phase in the process” of easing policy, and “from this point forward, it's appropriate to move cautiously and look for progress on inflation.”
Unlike many FOMC meetings, markets headed in a decisive direction upon the release of the decision, and Powell’s post-meeting commentary did nothing to stem the flow. Subsequent days admittedly have seen a paring of Wednesday’s sell-off although there’s still only one further 25bp cut fully priced for 2025.
In data, core PCE inflation surprised a touch lower at 0.115% M/M (expected 0.13-0.14) along with some mixed to weaker revisions. Recent trend rates of ~2.5% annualized are running under the 2.8% Y/Y which will give FOMC members at least some relief, but the supercore remains too high at 3.5% Y/Y.
GDP growth was revised higher to 3.0% annualized in Q3, with strong domestic demand, and signs of more of the same in Q4 tracking.
Jobless claims surprised lower, further supporting that notion that whilst the labor market is broadly cooling there aren’t sign of a significant deterioration.
First post-FOMC Fedspeak: Hammack explains her dissent as a “close call”, Daly “very comfortable” with new 2025 median dot of two cuts for the year, Williams sees policy “somewhat” restrictive and Goolsbee now sees a slightly shallower rate path in 2025.
GB
ES
CA
US
AU