10y breakeven supports the Fed
June 17, 2024
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–Friday featured new recent lows in near SOFR calendars, with SFRU4/Z4 -33.5 (9487.5/9521) and SFRU4/U5 1-yr calendar at -112 (9487.5/9599.5) down 23.5 on the week. SFRZ5 was the trailblazing contract, surging 30.5 bps since last Friday, to 9615 or 3.85%. This level is right back to the MARCH level for Fed Funds (end of 2025) in the SEP dotplot, which was 3.875%…in June that projection was ratcheted up to 4.125%. Tens ended Friday at 4.21%, down 2.6 bps on the day. SFRM5 also ended Friday at 4.21, or a price of 9579. If the market is right about easing scenarios, then we can roughly expect 2/10 to be dis-inverted by next summer!
–Other interesting range extensions: 10y breakeven (treasury vs tip) ended Friday at 218 bps, near the low end of the range since the Fed began its hiking campaign. In mid-April this spread was holding above 240. Also, Russell 2k vs Nasdaq 100 as a ratio is making historic new lows.
–Fed officials are generally advocating patience in terms of rate cuts (Mester, Kashkari). There are a lot of Fed speakers slated this week: Harker today. Barkin, Collins, Kugler, Logan, Musalem (new St Louis President), Goolsbee tomorrow. Also tomorrow, Retail Sales and 20y auction. Wednesday is an abbreviated screen session.
