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The Fed is Not Dovish

US TSYS

FI markets broadly weaker after the bell, off second half lows after 30YY tapped 3.2066% high, 10YY comfortably above 3.0% to 3.1057%; yield curves bear steepening -- are off highs 2s10s +4.882 at33.703 vs. 37.390 high; 5s30s off inversion at 3.730 (+1.896).

  • Little react to rise in weekly claims (+19k to 200Kk), modest drop in continuing claims (-0.019M to 1.384M), today's sell-off more in rates and stocks simply an unwind of the view the Fed is not less hawkish for choosing to not hike 75bs or provide guidance to that effect.
  • With the FOMC and Tsy Refunding out of the way, markets have some clarity on the non-private sector's involvement in the long end and traders can focus on the still bearish fundamentals: duration risk / inflation etc. with the understanding the Fed is not coming to the rescue.
  • Bear curve steepening is an interesting move since it implies confidence that the economy and the Fed will power through this cycle. While the 10Y move is driven mainly by real rates (new cycle high), NOT higher inflation expectations. Further steepening ahead w/ relatively few hikes and QT starting.
  • That said, some focus on Friday's April employment data: +380k est vs. +431k prior and Average Hourly Earnings MoM (0.4% est); YoY (5.5% est).
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