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SONIA FIX - 20/01/23

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US FIX - 20/01/23

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USTs and gilts twist steepen ahead of the FOMC meeting

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  • USTs and gilts have seen curves twist steepen ahead of today's FOMC meeting with markets paring back expectations of the Fed's terminal rate by 3-4bp since yesterday's highs (with around 195bp of hikes priced to the May peak because the money market curve inverts). The German curve in contrast has marginally bear flattened (but moves have been much more limited).
  • The FOMC meeting is the clear highlight of the day. Markets are pricing in 75bp and sell-side analysts are unanimous in looking for a 75bp hike this week. The signaling of future moves is therefore likely to be the bigger market mover. In a close call, we expect only limited changes to the Statement – but anticipate that Chair Powell will signal that the Committee is currently eyeing either 50bp or 75bp in December, with the decision to be data-dependent. If there are substantive changes to the Statement, the risks are almost certainly that they lean dovish, with either an overt nod to slowing the pace of increases, or a reference to the impact of cumulative hikes on the economy. For the full MNI Fed Preview click here.
  • TY1 futures are up 0-1+ today at 110-20 with 10y UST yields down -0.3bp at 4.041% and 2y yields down -4.4bp at 4.504%.
  • Bund futures are down -0.18 today at 138.66 with 10y Bund yields up 0.3bp at 2.132% and Schatz yields up 1.4bp at 1.946%.
  • Gilt futures are down -0.13 today at 102.75 with 10y yields down -0.4bp at 3.460% and 2y yields down -5.2bp at 3.083%.
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  • USTs and gilts have seen curves twist steepen ahead of today's FOMC meeting with markets paring back expectations of the Fed's terminal rate by 3-4bp since yesterday's highs (with around 195bp of hikes priced to the May peak because the money market curve inverts). The German curve in contrast has marginally bear flattened (but moves have been much more limited).
  • The FOMC meeting is the clear highlight of the day. Markets are pricing in 75bp and sell-side analysts are unanimous in looking for a 75bp hike this week. The signaling of future moves is therefore likely to be the bigger market mover. In a close call, we expect only limited changes to the Statement – but anticipate that Chair Powell will signal that the Committee is currently eyeing either 50bp or 75bp in December, with the decision to be data-dependent. If there are substantive changes to the Statement, the risks are almost certainly that they lean dovish, with either an overt nod to slowing the pace of increases, or a reference to the impact of cumulative hikes on the economy. For the full MNI Fed Preview click here.
  • TY1 futures are up 0-1+ today at 110-20 with 10y UST yields down -0.3bp at 4.041% and 2y yields down -4.4bp at 4.504%.
  • Bund futures are down -0.18 today at 138.66 with 10y Bund yields up 0.3bp at 2.132% and Schatz yields up 1.4bp at 1.946%.
  • Gilt futures are down -0.13 today at 102.75 with 10y yields down -0.4bp at 3.460% and 2y yields down -5.2bp at 3.083%.