Rate Move Extends to 50+ Bps in Two Days

50bp… 75bp… 100bp(?) hike on the table for Fed. Today’s price action was disorderly to say the least as swap rates and Treasury yields picked up right where they left off on Friday, jumping 20-30bps higher on the day to complete one of the biggest two-day moves in years. If Friday’s CPI print was the match, today’s broad-based calls for a 75bp hike was the gasoline as strategists across the street upped their forecasts for Wednesday’s FOMC meeting. The 10-year Treasury yield ended the day up at 3.36% (another multiyear high), only ½ a basis point above the 2-year yield:

Putting this sell-off in historical context. Not in 20 years has the front end of the curve moved this dramatically, this quickly. Even if the 2-year Treasury yield remains unchanged for the rest of the year, it will still beat out the next closest year by over 120 basis points for the biggest one-year move. As a result, the market is now pricing in a Fed Funds rate of nearly 3.70% by year end, and 4% in early 2023. Unsurprisingly, Fed Funds futures are pricing in a near 100% likelihood of a 75bp rate hike at Wednesday’s FOMC meeting.

Day ahead. While another day of high volatility seems all but guaranteed, it will be a relatively quiet day data-wise as the FOMC begins its two day meeting. Of interest, the market will get the latest look at PPI for the month of May. Forecasts call for the Producer Price Index to show a 8.8% year-over-year inflation rate.