Model Signal Alert
Bonds & More
The bond bashing followed through from Friday, with another push higher in yields across the curve. Jay’s “60 minutes” performance was modestly hawkish, reaffirming last week's comments that a March rate cut is unlikely. He also suggested that the December “dots” haven’t moved much and that the commercial real estate problem is manageable.
The bond selling was also boosted by a beat in the services ISM, which expanded at 53.4 in January vs. the expected 52.0. Prices paid also increased notably within services, posting 64.0 vs. the expected 56.7. Most importantly, services employment expanded during the month, confirming the strength and tightness of the labour market.
Our FOMC’s favourite, Kashkari, brought the discussion about higher terminal rates back to the table. “It is possible, at least during the post-pandemic recovery period, that the policy stance that represents neutral has increased”. The longer-run median dot in the last Summary of Economic Projections was 2.5%, but three officials forecasted 3.5% or higher in December.
Unsurprisingly, the market took some of the 2024 easing off the table. 30 bps, to be more precise. In the matter of 2 trading days, we have taken down more than a hike, but still 45 bps more than where the FOMC sees them by year-end.
With all those moves, let’s have a quick look at what might have changed in the models since Friday and yesterday’s ATW update.
Those of you who have the TradingView Scripts might have seen the changes already using your own terminal.