• Meanwhile in markets, quiet has returned following the epic (short covering) bond market rally that was fueled by horror show PMI data from both sides of the Atlantic. Things felt very familiar when equities rallied on what was truly bad economic data.
  • US Treasury yields have rebounded from yesterday’s lows, with the 10y at 3.08, up 8bps from the low, though we are still down 32bps from last week’s post-pandemic high. Despite recession talk having become commonplace, the yield curve refuses to invert in the key 2-year/10-year spread, which was at 5bps at pixel time. You know were we stand on US recessions without a sustained and significant yield curve inversion in key spreads (very highly unlikely).
  • Fed and ECB rate hike bets are being dialed down. For the year 175bps of Fed hikes are priced in versus 200bps before the bond market rally. Over the span of just a few days, terminal rate is down 50bps to 3.50 percent. OIS have priced in close to 150bps of ECB hikes for the year. Here we also see a 25bps hike lobbed off for 2022 pricing. Perhaps by sheer luck, 150bps happens to be bang in line with our post-June meeting call of two 25bps hikes (July and December) and two 50bps hikes (September and October). We were planning on raising our call for ECB hikes this year, but clearly a different wind has started to blow.



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