Treasurys Sell Off Ahead of Fed Blackout 

Week ends with risk-on sentiment. Treasurys sold off across a steepening curve today, the 10-year yield increasing ~9bps to 3.48% while the 2-year yield increased ~4bps to 4.17%. The selloff of the past few days has offset a large portion of the rally that occurred in the beginning of the week, with the 2-year yield ending the week down only ~6bps after being down as many as 15bps. Futures remain locked on a 25 bp hike at the upcoming February FOMC meeting, which has long been the expectation. Equities flourished today, with the S&P 500 rising 1.89% while NASDAQ climbed 2.66%. 

FOMC expected to hike rates 25bps, supported by today’s Fedspeak ahead of blackout period. The market is currently pricing in a near-100% probability of a 25bp hike at the February FOMC meeting. In his comments this morning, Harker said that he expects hikes a “few more times this year”, and that in his view, “hikes of 25bps will be appropriate going forward”. Governor Waller reinforced the sentiment this afternoon, saying that he favors hiking by 25bps at the February meeting. Currently, the Fed’s median rate projection is 5.1% for 2023, which will next be updated at the March FOMC meeting.  

Week ahead. The Fed blackout period that leads up to February’s FOMC meeting will commence tomorrow. Next week will be data-heavy, including PMI on Tuesday, mortgage rate data on Wednesday, GDP growth rate and retail & wholesale inventory data on Thursday, and PCE on Friday.