Higher longer
March 8, 2023
–These bullet point headlines tell yesterday’s story from Powell’s semi-annual testimony:
POWELL: “ULTIMATE LEVEL OF INTEREST RATES IS LIKELY TO BE HIGHER THAN PREVIOUSLY ANTICIPATED”
POWELL: IF DATA INDICATE, FED IS PREPARED TO INCREASE PACE OF RATE HIKES
POWELL: RESTORING PRICE STABILITY WILL REQUIRE RESTRICTIVE POLICY STANCE FOR SOME TIME
–Odds swung toward 50 bps for the March 22 FOMC; Friday’s NFP (expected 200k) and Tuesday’s CPI will be key (yoy 6.2 vs last at 6.4).
–Lowest contract on SOFR curve is SFRU3 at 9435.5 or 5.645%; it’s the weakest contract on the day. That’s down 21 from Friday’s settle and -18 yesterday. Low on the FF curve is Oct’23 at 9436.0. Peak rate has moved higher and slightly forward. April FF settled 9502 or 4.98%. Current EFFR is 458, so now pricing 40 bps for March 22. Monday’s settle was 9511.
–Curve became even more inverted. On the SOFR strip; reds (2nd yr) -10, greens -2.625, blues UP 3.375 and golds UP 5.875. Red/green pack spread at new low -89.5. 2/10 new low -103.4. The two year rose 11.2 bps to close just over 5%. The thirty year bond yield fell 2.8 to 3.882. The market is reflecting the idea that further funding increases will indeed kill the economy, though SPX was only -1.5%.
–March SOFR and ED midcurves expire Friday. 0QH 9487.5^ settled 18.5, huge premium for a few days.
