Fed: Hawkish repricing lifts front-end yields – Deutsche Bank

Deutsche Bank strategists highlight a more hawkish repricing of the Federal Reserve path. The authors note reduced odds of a June rate cut, fewer basis points of easing priced by December, and a rise in 2-year Treasury yields, supported by comments from Fed officials pushing back against imminent rate cuts.

Hawkish shift in Fed expectations

"Given the more positive data and the tech stock rebound, investors also priced in a slightly more hawkish path for the Fed over the year ahead."

"For instance, the probability of a rate cut by the June meeting fell to just 52%, the lowest so far this year."

"And looking further out, just 55bps of cuts are now priced in by the December meeting, which was down -3.9bps on the day."

"So in turn, that pushed up front-end Treasury yields, with the 2yr yield (+2.3bps) up to 3.46%, although the 10yr yield (-0.2bps) was basically flat at 4.03%."

"Comments from Fed officials also leaned against imminent rate cuts, with Chicago Fed President Goolsbee warning that 3% inflation “is not good enough” and that they needed to make more progress."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)