Short end yields jump
December 6, 2022
–Large jump in short end rates Monday as ISM Services rose to 56.5 vs expected 53.5. WSJ ran a Timiraos article that suggested the Fed could raise rates above the market’s 5% terminal expectation. March’24 weakest ED and SOFR contracts, down 17 bps (9568.5 and 9594.5) Lowest contract on SOFR strip is M3 at 9502, down 10 on the day. Red/green ED pack spread made another new historic low at -87.75. 2/10 remains anchored to a new cycle low around -80. Ten year yield rose 9.2 bps to 3.596%. Stocks were hit with SPX -1.8% and Nasdaq -1.9%.
–Attached chart shows ISM Services with S&P Service PMI…a bit of a divergence there.
–Jan’23 FF settled at 9564.5, continuing to peg next week’s rate rise to 4.25-4.50% with a new Fed Effective of 433. FFG3, which will capture the Feb 1 FOMC settled 9529.5. Assuming 50 in Dec, another 25 in Feb would lead to a final settle of 9542.9 while another 50 would be 9518.8.
