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Yields Recede, Fed Opens Door to June Pause

US TSYS
  • Wednesday's session remained volatile as Treasury futures extended highs after the FOMC delivered an expected 25bp rate hike to 5.0-5.25% range, support driven by the the Fed opening the door to a pause at the next meeting on June 14.
  • The Fed rate path slipped lower after Chairman Powell's press conference, the June meeting dips 2bps to 5.08% but is still +1bps since the announcement.
  • Assuming an effective rate of 5.08%, it largely marks a perceived end to the tightening cycle, with today’s hike priced to be unwound with Sep at -27ps to 4.81% (now -1bp post-decision having been +3bp in the presser). December cumulative at 74bp of cuts to 4.35% (now -1.5bp post-decision having been ~4.42%.
  • Early Data driven volatility: Treasury futures pared gains after higher than expected ADP employment gain of +296k (+148k est). Little reaction to a minimal downward revision for the final April S&P Global US Service PMI. Rates extended highs but drew fast selling after ISM Service index data showed ongoing volatile new orders.
  • Focus now on Friday's headline employment data for April, current mean estimate at +175k vs. 236k prior. Goldman Sachs raised their nonfarm payroll growth forecast by 25k to 250k after this morning's ADP and consistent with evidence from other Big Data sources.
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