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Pre-FOMC Pressure in Rates, Accelerated Taper Expected

US TSYS
Tsys finish weaker -- near the middle of the month's range on light volume (TYH2<950 after the bell) in the lead up to the final FOMC policy annc for 2021 on Wednesday. FOMC expected to shift in a hawkish direction at the December meeting as it eyes rising inflation risks.
  • This shift will include a doubling of the pace of the asset purchase taper, a more aggressive rate “dot plot”, and an adjustment in the Statement language (including eliminating the word “transitory” to describe inflation).
  • FOMC signaling more than 2 hikes in 2022, or a hiking pace faster than 3 hikes per year, would be hawkish vs expectations.
  • Early session: post-PPI react, Tsys pared losses: Already bouncing off lows ahead the release, Tsy futures extended the bounce even after Nov PPI +0.8% vs. +0.5 est, equities traded weaker in mild risk-off/risk-on unwind start to the session.
  • Delayed sell-off, Tsys eventually receded: PPI's further evidence of underlying inflationary pressures, it does little to change market expectations for Wed's FOMC
  • The 2-Yr yield is up 2.8bps at 0.6608%, 5-Yr is up 3.1bps at 1.2353%, 10-Yr is up 2.2bps at 1.4377%, and 30-Yr is up 1.9bps at 1.8186%.
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