June 18. Fed aftermath

–It was fairly uneventful going into the Fed meeting, though the long end of the treasury curve traded on the weak side.  As it turned out the Fed was relatively dovish.  Both TYU and USU had outside days, but the tens closed higher on the day and bonds lower.  According to the marks at floor settlement, 5/30 rose over 6 bps to 144.8.  Ten year cash yield was essentially unchanged at 231.1.    Thirty year bonds were up 2.5 bps to 307.5.  Stocks were essentially unchanged and searching for direction, ESU had a range of 2078.75 to 2098.75 and settled right in between at 2089.25.
–As expected, the dot plot average shifted lower.  Though most of the press looks to the median, the actual 17 dot averages went from 77.2 to 56.6 for the end of 2015, and 202.2 to 175 for 2016, a drop of over 25 bps. EDZ5 closed 9941.5, about 30 bps below the just expired June contract, essentially forecasting just one hike prior to year end.  Jan 2016 Fed funds settled 9961.5, versus FFN (July) at 9986.5, a difference of exact 1/4%.  The 2016 dot average of 175 compares to EDZ6 settlement of 9856.0 or 144 bps.  So while the Fed moved its forecast lower, the market still figures the end of year 2016 to have a FF rate of just 1.00-1.25%.  We might finally be getting to the point where the mountain comes to Mohammed, i.e. that the market (from 2016 on) will begin to sell off slightly to align with the prognostications of the Fed seers.  The reticence of the Fed chair to speak hawkishly should, at some point, create angst for the long end, though Greek exit fears may yet keep a bid in US fixed income from tens in.   Not this morning though, as all interest rate futures are higher and the dollar is going lower.
–Summary: dots lowered, dollar gets hit, curve steepens, Greek problems and Fed doves support the belly.

 

Posted on June 18, 2015 at 3:56 pm by alexmanzara · Permalink
In: Eurodollar Options

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