Elevated Vols in USD Rates - Fed Fund Futures is pricing in 80 bps of rate cuts

"Volatility is an opportunity in disguise."

US yields continue to move lower as markets price in 81 bps of rate cuts beginning July 2023 and by end of Dec 2023 to 4.02%. Market pricing is in significant departure from the Fed interest rate guidance of Fed Fund Rate at 5.10% through 2023. Data released yesterday showed Initial jobless claims for the w/e March 18 decreased by 1,000 to 191,000 and continuing jobless claims w/e March 11 increased by 14,000 to 1.694 million. Initial Jobless claims under 200K still denotes a healthy market and shows no signs of strain post the SVB Collapse. Sales of new single‐family houses in February 2023 were at a seasonally adjusted annual rate of 640,000, 1.1% above the revised January rate of 633,000, but is 19.0% below the February 2022 estimate of 790,000. 

In yesterday's price action, 

US Yields 2Y High low range 25 bps to close the session at 3.81% near lows of 3.76%

US Yields 10Y High low range 15 bps to closed the session at 3.40% near lows of 3.37%

2x10 curve closed the session at 41 bps

To put it in perspective, US 2Y peak yielded 5.08% on 08th March 2023 and 10Y yield peaked at 4.09% on 02 March 2023 and the 2x10 curve inversion widened to 109 bps on 08th March 2023. 

Similarly for USD SOFR Swaps, the high low range was over 20 bps with Swaps closing at the bottom of the range. 2Y closed at 3.78% and 5Y closed at 3.20%.

We are seeing unprecedented volatility in US Treasuries. Such volatility in the bond markets was a feature of the 1980s. 

US 2Y Treasuries are finding resistance at the 3.8% level. Below 3.80%, the next really crucial level comes in at 2.80%. On the topside immediate resistance comes in at 4.26%.