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Tsys Recede Post-NY Fed Williams Comments on Achieving 2% Target

US TSYS
  • Tsys are mixed to mildly weaker after the bell, curves steeper with the short end outperforming (2s10s +2.123 at -33.179). Limited data today, MBA mortgage applications bounced a seasonally adjusted 9.9% in the week to Jan 5, having fallen -10.7% in the prior, holiday-distorted week. Wholesale inventories in line at -0.2%, Wholesale trade lower than expected at 0.0% vs. 0.4%.
  • Rates and equities dipped late after New York Fed President John Williams said he expects the central bank to keep a restrictive stance for some time and to begin rate cuts only when confident inflation is moving toward 2% on a sustained basis, also noting a slowing of QT does not seem to be close.
  • Markets awaiting CPI/PPI on Thursday/Friday. Realization of still relatively sticky core CPI inflation could help continue a trimming of Fed rate cut expectations compared to those extremes seen late last year, despite that move pausing in the past few sessions.
  • Projected rate cuts for early 2024 gaining slightly: January 2024 cumulative -1.1bp at 5.318%, March 2024 chance of rate cut -64.0% vs. -62.0% late Tuesday w/ cumulative of -17.1bp at 5.158%, May 2024 chance of cut 90.9% vs. 86.8% late Tuesday, cumulative -39.8bp at 4.930%. Fed terminal at 5.3275% in Jan'24.
  • Treasury futures show little initial reaction to final 10Y sale re-open, TYH4 see-saws around 111-29.5 (+.5) after the $37B 10Y note auction re-open (91282CJJ1) tailed: 4.024% high yield vs. 4.017% WI; 2.56x bid-to-cover vs. 2.53x prior.
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