Bullard is at it Again

  • The week opens with higher yields as St. Louis Fed President James Bullard is making headlines again with his comment earlier this morning that he sees two more rate hikes this year (more on that below). That and the debt ceiling debate have the market in an anxious mood as trading opens for the week.  Currently, the 10yr is at 3.69%, down 4/32nds in price, while the 2yr is yielding 4.29%, down 2/32nds in price.


  • Speaking at an event in Florida this morning, St. Louis Fed President James Bullard is quoted as saying he thinks two more rate hikes will be needed this year. Bullard is not a voter on the FOMC this year but he is certainly influential and is often at the leading edge of hawkish comments in this rate-hiking cycle, but he had been somewhat vague in recent talks about his rate outlook, until this morning.


  • Before Bullard, Minneapolis Fed President Neel Kashkari was on CNBC saying that a June pause is “a close call.” But he was quick to add that skipping a meeting would not imply that rate hikes are done. That decision, he said, would be based on the incoming data between now and then. Five more Fed speakers are scheduled to speak this week so expect some more headlines to come with the theme seeming to be that the decision to pause at the June meeting has not been decided one way or the other. All the Fed speak about June still being a “live” meeting has reduced some of the rate-cutting expectations in the futures market which now sees only 46bps in rate cuts by year-end (see chart below). That is no doubt one of the Fed’s intentions with its recent jawboning.


  • Meanwhile, with President Biden back in the country after the G7 meetings debt ceiling negotiations are set to resume with a White House meeting with Speaker Keven McCarthy due to commence today. In that regard, Treasury Secretary Yellen was speaking over the weekend that Treasury cashflow analysis was looking bleaker as to making it to June 15 when quarterly corporate tax payments would provide enough cash to make it into July. She did mention for the first time that absent an increase in the debt ceiling that the Treasury would likely prioritize Treasury coupon payments to avert outright defaults. She didn’t mention which other non-debt obligations would be deferred in that situation. It should be noted too that other third-party analysis of the Treasury’s cash position are starting to also doubt that Treasury can make it to the June 15 corporate tax payments, so it does add to the urgency to get something done soon in the debt ceiling negotiations.


  • The data calendar is light again this week, but the focus will be on the Friday release of the personal income and spending numbers for April. The PCE inflation series will get most of the attention what with the Fed combing over every inflation data point between now and the June meeting. The expectation for April is for sticky prices with the overall PCE ticking higher from 4.2% to 4.3% and core PCE unchanged at 4.6%. The Fed will see the May CPI numbers just as their June meeting kicks off so that will be last bit of inflation data before the rate decision is made.


Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 5.07 4.81 4.78 4.81 5.02 5.48
0.50 5.06 4.78 4.72 4.70 4.87 5.37
1.00 5.05 4.75 4.69 4.65 4.78 5.24
2.00 4.73 4.63 4.58 4.67 NA
3.00 4.53 4.60 NA
4.00 4.56 NA
5.00 4.52 NA
10.00 NA

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Published: 05/22/23 Author: Thomas R. Fitzgerald