Repricing in FFR // Long End of UST curve outperforms

It is not supposed to be easy. Anyone who finds it easy is stupid.

~ Charlie Munger

The week was all about a very heavy Economic calendar and the USD sell off. What a phenomenal repricing in Fed Fund Rates.

The Peak Terminal Rate pricing shifted from highs of 5.40% to lows of 5.34%, 6 bps move, to close the week at 5.34%. Over the last month, peak pricing was seen at 5.48%.

The June policy was pricing in 8 bps of rate cuts (5.245%) which moved to 31 bps of rate cut by end of the week to 5.02% and closed the week at 5.04%. For the June 2024 meeting, since Oct, market pricing has moved from peak 5.315% to 5.02%

The Dec 2024 Implied FFR pricing shifted from highs of 4.745% to lows of 4.385%, 36 bps move, to close the week at 4.42%.

The risk reward favored a move lower in the implied pricing as has been highlighted in previous posts.

The meat of the move lay in the timing of rate cuts and far end pricing.

The long end of the US Treasury Curve outperformed the short end with yields on US10s down 46 bps and yields on US2s down 28 bps, peak to trough. US2s and 10s closed near the best levels of the week with yields at close 4.84% (below 4.90% technical support) and 4.57% (technical support seen at 4.50%). At one time, yields on US10s fell to as low as 4.48%.

The data calendar for the week ahead is fairly muted.

The Fedspeak has focused on the tightening of financial conditions as US yields and USD index have moved up and equity prices have declined. Post last week's data and the policy meeting, we are seeing reversal in asset markets. If the reversal is not supported by deteriorating economic data and Fed judges that financial conditions have loosened more than warranted, we could again be in 2 states. For reference, levels at close after 1st day of policy meeting, are mentioned below. So it's important to take profits on dips and watch out for the Fed speak to assess narrative shifts.

US10Y yields USD INDEX S&P

26-Jul-23 3.88% 101.04 4569

20-Sep-23 4.36% 105.44 4450

01-Nov-23 4.93% 106.72 4186

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