Treasury yields are unchanged to slightly lower following a quiet overnight session where U.K. and Chinese markets were closed for holiday. The big focus for this week will be the FOMC announcement on Wednesday. Markets are currently expecting a 50 bps rate hike and the initiation of balance sheet reduction according to plans laid out in the minutes of the March meeting. Friday’s ECI-induced sell-off in Treasuries has sparked a fresh round of questions from Wall Street analysts and rate strategists as to whether there can be any more near-term selling given the hawkishness now priced into rates. The fed funds futures market is now pricing 50 bps hikes at the next four FOMC meetings, which would have the funds rate back to the Fed’s current neutral assumption by September, and any additional hikes in the final two meetings of 2022 would take the policy rate into restrictive territory. The more dovish members of the FOMC have suggested a desire to get the policy rate to neutral by year-end (not September), but perhaps the record ECI print on Friday could stoke more inflation fears at the Fed. Regardless, projecting a more hawkish path than 250 bps of rate hikes by year-end would seem to be overly-aggressive assumption at this point.
Chief Investment Officer
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