Fed Speakers Continue to Explore Hawkish Frontier

  • We mentioned on Monday with a light week of economic information the trading will be driven mostly by Fed speakers trying to out-hawk the other.


  • So far, we haven’t been disappointed. Reliably quote-worthy St. Lous Fed President James Bullard was first out of the box with a statement that the Fed may want to consider a 75bps rate hike. While he was the first to broach the 50bps hike talk, he’s leaving that for other Fed officials to ponder as he continues to blaze a trail in search of the Hawkish Frontier.


  • Chicago Fed President Charles Evans spoke yesterday at the Economic Club of New York with what is considered the more mainstream Fed view on policy. For years, Evans was considered one of the most dovish members, but he too has turned hawkish and mentioned yesterday that a 50bps hike at the May meeting may be appropriate. While expecting the funds rate to reach 2.25% – 2.50% by year-end, he played down the need for any hike larger than 50bps. He did say, however, that the Fed may need to hike above the so-called neutral rate (currently estimated around 2.50%),to wrestle inflation back towards 2%.


  • Atlanta Fed President Rafael Bostic also played down the need for hikes larger than 50bps. He sees the funds rate near 1.75% by year-end.


  • The highlight of the week will be Thursday when Fed Chair Powell and ECB President Christine Lagarde take part in a panel discussion on the global economy. The ECB hasn’t hiked rates yet in this cycle but they are moving in that direction. Her comments in that regard, and of course Powell’s latest outlook, will get plenty of coverage. The event takes place at 1pm ET.


  • All the Fed talk had Treasury yields opening higher as overnight trading began with the 10yr reaching 2.977% early in the evening, but better bids slowly started to appear with the 10yr dipping to 2.86% as bargain hunters appeared.


  • If investors are looking/waiting for 3+% yields in Treasuries, they are already available in 20yr maturities which currently trade at 3.14%. The Treasury will be auctioning more 20yr maturities this afternoon, but no additional concession is being built in with the current issue up 23/32nds in price on the day.


Agency Indications — FNMA / FHLMC Callable Rates

Maturity (yrs) 2 Year 3 Year 4 Year 5 Year 10 Year 15 Year
0.25 2.66 2.91 3.04 3.21 3.42 3.88
0.50 2.65 2.89 2.98 3.10 3.27 3.77
1.00 2.64 2.86 2.95 3.06 3.18 3.64
2.00 2.85 2.89 2.98 3.07 NA
3.00 2.93 3.00 NA
4.00 2.96 NA
5.00 2.92 NA
10.00 NA

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Published: 04/21/22 Author: Thomas R. Fitzgerald