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Rates Hug Lows After Surprise BOE, Norges Bank 50Bp Hikes

  • Treasury futures settling in around late session lows (TYU3 112-24 -18, yield 3.7946%) after some early policy and data driven volatility. Treasury futures inexplicably bounced off initial lows following this morning's surprise 50Bp hike from the BoE (Norges Bank hiked same overnight).Gist of rebound making the rounds is the larger than anticipated hike to stem inflation brings forward timing of a rate cut.
  • The MPC said nothing to push back directly against market rate expectations for a near 6% peak in Bank Rate, instead sticking to its previous line that if there was evidence of more persistent inflation pressures, further tightening would be required.
  • Meanwhile, Treasury futures marked session highs after weekly claims comes out strong for the third consecutive read (+264k vs. +259k est, +262 prior revised to +264k). Front month 10Y futures tap 113-14 (+4) high post data, scaling back to 112-21 low after midday. Curves bending steeper, 2s10s +1.021 at -99.255 after falling to -101.103 low earlier (nearing March's 40+ year inverted low of -110.0).
  • Little reaction to Fed Chairman Powell's second day of policy testimony to Congress and lengthy Q&A that followed. Chair Powell said the "FED VERY AWARE, CONCERNED ABOUT COMMERCIAL REAL ESTATE, and may raise capital requirements for large banks (>100B) by as much as 20%.
  • Friday focus: S&P PMIs, KC Fed Services and additional Fed Speakers.

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