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Bond Market Insights - Sat, 07 Jan 2023


The first week of 2023 ended with an explosive rally in US rates after the December jobs report showed wage growth slowed, with average hourly earnings up 4.6% YoY, compared to the consensus forecast of 5.0%. Dec Services ISM was much weaker than expected, falling below 50 for the first-time since May 2020, with new orders sliding.

The front-end outperformed with 2yr yields sliding to 4.25% after having tested 4.50% before the data. 5yrs traded very well on the curve as yields saw a 25bps reversal from the highs, closing near session lows near 3.70. Secured Overnight Financing Rate futures flattened aggressively, SFRM3 vs SFRM4 (June 23 vs June 24) closing down 21 ticks at -144bps, which is near levels traded going into the Dec FOMC, implying that 5bps have been knocked off expectations for the Feb meeting, moving towards a 25bp hike. The terminal rate expectation fell about 10bps, June futures down to 4.96%.

This move rather ignored Fed speakers, including Bostic, Cook, and Harker, who continue hawkishly repeating there is ‘still work do’ and that inflation remains ‘far too high’

US CPI is the core report next week, it is the last inflation report before the February FOMC. Fed’s Bostic says he is open to raising rates by either 50bps or 25bps on Feb 1, which is echoed in the expectations of the major banks, not surprisingly. Goldman expect 0.25bp hikes in each of Feb, March and May and do not expect any rate cuts in 2023. Chicago Fed Evans, who retires next week said keeping rate hikes to 25bps allows a little more time for data to evolve, “You can still string them out. So just going to 25 doesn’t mean that a pause is imminent”.

Looking forward to the US corporate market next week, according to Quigley’s Corner bond syndicate ( there should be $32bn of investment grade primary issuance, which is mid-range of estimates. Month to date $48bn or an expected $134bn for January has already been printed.


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