Outperforming Bunds Early On, Fed The Only Game In Town

TY has shown through its Asia-Pac high, but last deals 0-04 off the peak of its narrow 0-06 range. Cash Tsys are flat to 0.5bp richer to 1bp cheaper, with some modest steepening on the curve. This comes even as the Bund curve runs cheaper.

• Focus is squarely on the impending FOMC decision, with a 25bp hike seen as virtually certain focus should quickly move to the post-meeting statement and Chair Powell’s address.
• Powell is likely to suggest that a follow-up hike is possible at the next meeting in September, but will emphasize that no decision has yet been made, and will depend on the substantial inflation and jobs data in the interim. Click for our full preview of the event.
• Well also flag our policy team’s latest piece, published late yesterday, which noted that “the Federal Reserve is expected to raise rates by 25 basis point and keep its tightening bias this week, reflecting upside risks to the FOMC's inflation projections, ex-Fed policymakers and staff told MNI, though some expect the Fed not to hike again until Nov.”
• A 25bp hike is essentially fully priced into the FOMC-dated OIS strip, with a cumulative 36bp of tightening showing through November. Beyond there, roughly 60bp of cuts is priced through June ’24.