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Tsy/Eurodlr Mkt Roundup, Short End Pricing in Hawkish Fed Policy

US
Markets continued to react to Wed's FOMC's hawkish hold, short end under heavy pressure as they priced in 125-150bp in rate hikes by yr end, another 50bp in 2023.
Hopefully we'll get more insight on "sooner, faster" asset reductions when the Fed comes out of media blackout Fri.
  • Lead quarterly Eurodollar futures (EDH2) remained under pressure (-0.060 at 99.475) after latest 3M LIBOR set' surged +0.02143 to 0.29900% (+0.04129/wk) highest 3M level since May 2020.
  • Done and dusted: 25bp hike fully priced into Mar (some dealers starting to estimate 50bp hike in March) while Jun is more than halfway to pricing in 50bp as a result of Wed's hawkish hold from the FOMC.
  • Active accts continued to add to downside/rate hike positioning: late block cross as one example: +10,000 Red Mar'23 96.75p 5.0 w/ Red Sep 96.75/97.75 put strip 50.5 cvrd. On the flipside, some significant unwinds reported even before the NY open: -60,000 short Mar 98.25 puts, 8.5-7.5.
  • Tsy yld curves flattened (5s30s 42.78) while 7s10s see-sawed around 2.196 (-.843), little reaction to a small stop for $53B 7Y note auction (91282CDW8): 1.769% high yield vs. 1.770% WI; 2.36x bid-to-cover vs. 2.21x last month.
  • Friday data focus on personal income/spending, ECI and U-Mich sentiment.
  • The 2-Yr yield is up 3.4bps at 1.1842%, 5-Yr is down 2.5bps at 1.6599%, 10-Yr is down 5.4bps at 1.8101%, and 30-Yr is down 7.1bps at 2.0936%.
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