Steady Re-Open After Twist Steepening Post-Fed

A flat re-open for TYU2, last dealing in line with late NY levels, -0-11 at 120-02+. To recap, the curve twist steepened on Wednesday, with the major benchmarks running 6bp richer to 4bp cheaper, as the extremities came in the wings of the curve and the pivot took place in the 10- to 20-Year zone. Pre-FOMC data was mixed, with firmer than expected durable goods and weak pending home sales observed. The space was a little firmer on the day into the Fed decision.

• The Fed delivered the widely expected 75bp rate hike, while the post-meeting statement opened with a downgraded view on economic activity: “recent indicators of spending and production have softened. Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low.” Still the Fed remains committed to its fight against inflation, with food added to the list of notable inflationary inputs this time around.
• As we moved through the press conference Chair Powell was less prescriptive when it comes to what to expect down the line, after the statement repeated that the Fed “anticipates that ongoing increases in the target range will be appropriate.” Powell noted that “at some point it will be appropriate to slow down,” with the potential for another “unusually large increase” evident, although data-dependence was stressed with the Fed less inclined to be specific in its guidance now it is back to its estimate re: the neutral level of rates. Note that Powell pointed to the dot plot as the best guidance for rates through ’22, but caveated this by noting that updates to the SEP will come at the next SEP.
• Tsys out to 10s rallied to fresh session highs during the Powell presser before pulling back from extremes, while the long end cheapened, the USD softened and stocks firmed amid the lack of fresh hawkish information/potential for slower rate hikes. OIS removed 10bp of cumulative tightening through Dec ’22 on the session, while the Sep meeting saw a modest reduction of tightening premium (3-4bp), with a 50bp hike still more than fully priced for Sep.
• There isn’t much in the way of tier 1 macro data slated for the Asia-Pac session, while the initial Q2 GDP reading provides the highlight of Thursday’s NY docket (with median estimates looking for the U.S. to escape a technical recession). Weekly jobless claims data and the Kansas City Fed m’fing activity reading are also due, as is 7-Year supply.