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Rate Hike Path Without Recession

US TSYS
Rates trading stronger after the bell, but trimming gains back to midmorning levels. Notably, yield curves recovered from early flattening to steeper (2s10s +2.024 at 29.763 vs. 22.474 low) as the short end unwinds Wednesday's more aggressive rate hikes from additional three to four 50bps hikes by year end to two over the next two FOMC meetings.
  • Chances of additional hikes in the second half of the year receded Thursday. Cumulative hikes for July (9.5bps) are not far off when the US came in but there have been larger slides on the day further out. Both Sep (133bp) and Dec (181bp) are ~5bp lower than prior to US CPI.
  • Treasury Secretary Janet Yellen told lawmakers the Federal Reserve has a path to increase interest rates without setting off a recession. "The Fed has a path to bring down inflation, without causing a recession and I know that it will be their objective to try to accomplish that," she said at a hearing before Congress when asked about risks of stagflation.
  • Tys gained briefly after $22B 30Y auction (912810TG3) stops through: 2.997% high yield vs. 3.002% WI; 2.38x bid-to-cover vs. 2.30x last month. Indirect take-up climbs to 69.66% vs. 65.23% in Apr; direct bidder take-up slips to 16.60% vs. 18.91% prior; primary dealer take-up 13.74% vs. 15.87%.
  • Friday focus: Import/Export Price Indexes, UMich Sentiment while MN Fed Kashkari speaks on energy and inflation at 1100ET, Cleveland Fed Mester on monetary policy at 1200ET. Sidebar: Fed Chairman Powell confirmed by Senate for a second term today.
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