US Treasuries Price action evolving on expected lines / Fed Commentary Hawkish

 I have been mentioning in my earlier posts on the Inverted H&S pattern on the US2Y and US10Y Treasury yields. 

I like to say to myself "Don't ask too many WHYs??? Believe that somethings will behave true to its form" because sometimes it is difficult to paint an accurate picture on fundamentals alone and your bias comes into play. 

Over the course of last week, Fed commentary has been pretty hawkish. For that matter, yesterday's speech by Governor Waller makes it clear that he will be data dependant in determining whether the Fed should hike or pause in the June policy and he does not support stopping rate hikes unless he has evidence that inflation is moving towards the 2% goal. 

Key takeaways from The FOMC minutes released earlier:

Core PCE price inflation estimates for FY 23 were revised higher to 3.80% and a mild recession to start later this year. The committee judged the economic activity to have expanded at a moderate pace while employment was resilient and inflation remained at elevated levels. The outlook was uncertain as how the lagged effects with which monetary policy works,  tightening of credit conditions and lending standards, elevated inflation and the impasse around the current debt ceiling work to constrain economic activity are to be seen. 

Participants generally expressed uncertainty about how much more policy tightening may be appropriate. Many participants focused on the need to retain optionality after this meeting. Some participants commented that, based on their expectations that progress in returning inflation to 2 percent could continue to be unacceptably slow, additional policy firming would likely be warranted at future meetings. Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary.

The interest rate markets continue to reprice rate cuts with Fed Fund Futures Pricing in a rate cut of 25 bps to 4.84% from earlier 67 bps of rate cut on 16th May 2023. At the throes of the start of the banking crisis markets had priced in Dec 23 rates as low as 3.87%. 

The target on the 2Y UST is closer to 5% and on the 10Y closer to 4%.