Tsys Cheapen A Little further As Bullard Reaffirms Rate Preference

Tsys cheapen a little as St. Louis Fed President Bullard (’25 voter) indicates that he would favour another 50bp of hikes from prevailing levels. TYM3 has made a fresh session low but hasn’t got near challenging Friday’s base. Cash Tsys run 2.0-4.5bp cheaper on the day, bear flattening.

• Bullard’s view isn’t new news, as he has indicated this preference in the March SEP and in subsequent rhetoric in April, but it has provided enough momentum in FOMC-dated OIS to bias Tsys cheaper (probably owing to Bullard gaining the influential title alongside his voter status during the hawkish policy moves seen in ’22). He also noted that the Fed should err on the side of doing more as opposed to doing less.
• FOMC-dated OIS now show 6bp of tightening for next month’s meeting, with terminal pricing for the July meeting showing around 5.17%. further out, somewhere in the region of 48bp of cuts is priced from current terminal rate pricing to year-end.