The Fed projects 100 bp ease in ’24, the market projects 150
June 16, 2023
–Yields declined in the wake of the FOMC, even though the dot plot suggests more tightening this year, and Fed officials are likely to try to jawbone their inflation resolve. According to FF futures settlements, FFQ3 to FFF4 is -6.0 (9475.5/9481.5), so there is no hiking priced, but the market is giving the Fed the benefit of a doubt in terms of holding rates steady. The end-of-2023 FF dot was 5.6 and end-of-2024 was 4.6. The 100 bps of ease (after the supposed hikes this year) is then essentially priced by the FFF4/FFQ4 spread which encompasses the first 5 FOMC meetings and settled -92.5 (9481.5/9574). New lows red pack to deferred, with reds/greens -62 bps. 2/10 treasury spread at -92. Ten year yield fell 7.6 bps to 3.726%. The lowest one-yr calendar on the SFR strip is Z3/Z4 at -150.5; more aggressive in terms of ease projection than the Fed.
–Waller speaks this morning at 7:46 ET.
–A lot of SFRZ3 calls bought yesterday: another 100k 9650 calls; settled 7.75 vs 9484.5. Also buyer of at least 15k 9550/9600cs from 5.2 synthetic to 5.5. Buyer of 20k SFRH4 9650/9750cs which settled 9.5 ref 9518.0 (looks like rolling long calls to lower strike).
–ECB hike and BOJ maintains easy posture. EUR/JPY yesterday hits 153.60, highest since 2008, and today 154.70. High in 2008, 169.49.
–On Monday floor is closed but screens stay open until noon Chicago time. No official settlements.
