USD Swaps: Upside risk assessed; Next Fed vice chair?

Fed portico 10 Jun 2020
Traders this week suggested that only "materially" strong CPI numbers will move the Fed towards a 50bps hike, while some banks expect a 20bps beat.

Start a free trial to read this article

Join today to access all  Total Derivatives content and breaking news. Already a subscriber? Please Log In to continue reading.

Or contact our Sales Team to discuss subscription options.

Get in Touch
Blurred image of Total Derivatives article content



  • High inflation print required to move Fed?

  • FOMC departure ahead - runners and riders for the vacancy 

  • New issues


    High inflation print required to move Fed?

    Traders yesterday took the view that it would require a “materially” above-consensus CPI print this week to prompt another 50bps hike from the Fed. Meanwhile the median Bloomberg survey expectation is for a deceleration in headline inflation to 6.2% from 6.5% last month, while core is seen slowing to 5.5%.


    Banks expecting a slightly higher outturn for headline CPI include JP Morgan, Morgan Stanley and Goldman Sachs, all of whom cluster around a forecast of 6.4%. In the market, NSA CPI traded at 6.222% (bilaterally and in $300m) early yesterday before edging down to 6.21808% last (see Total Derivatives SDR ). In early trading today, short TIPS breakevens are indicated 1-2bps wider against the backdrop of softer oil prices (WTI is a dollar lower at $79), a 0.3% rise in S&P futures and small pre-data gains for nominal USTs, led by the 5y at 3.88% (-3bps)


    With issuance temporarily on hold swap spreads are mostly wider with 5s at -21.00bps (+0.50), 10s at -28.75bps (+0.25) and 30s at -65.75bps (+0.25). Outright SOFR volumes are above-normal from 7y out to 30y.  


    Ahead, BNP Paribas previews the inflation numbers and expects a strongish report:


      “We expect inflation pressures remained sticky-high in January, underscoring our view that price growth will remain above the Fed's 2% target absent material weakening in the labor market."


      “The report will come in the wake of January's blowout labor market report and signs of a pickup in other activity indicators, in addition to a market repricing of this year's fed funds path closer to the Fed's December dots and our own forecast. We continue to see 25bp hikes in both March and May, and a terminal 5.25% held through the balance of the year. With just three FOMC participants needed to shift the median 2023 dot, we flag the risk that it drifts to 5.5% at the coming March FOMC meeting.  The Fed will receive one more payroll and another CPI report before the March FOMC meeting.”


    FOMC departure ahead - runners and riders for the vacancy

    Later today, a chorus of Fed speakers are scheduled for shortly after the data today including Barkin, Logan, Harker and the NY Fed’s Williams. BNPP reckons that Williams will attract the most attention after the official failed to rule out larger hikes if the situation changes, in recent comments.


    In the news, Bloomberg reports that President Biden is about to name Fed vice Chair Lael Brainard as director of the National Economic Council, depriving the FOMC of a dove. The WSJ suggests that candidates to replace her may include, “two current central-bank officials, Fed governor Lisa Cook and Boston Fed President Susan Collins, as well as Karen Dynan, an economist in the Obama administration who teaches at Harvard University, and Christina Romer, an economist at the University of California, Berkeley, who headed the Council of Economic Advisers in the Obama administration.”


    New issues

    • PepsiCo yesterday priced a $3bn 5-part ($500m 3y, $350m 3y FRN, $650m long 5y, $1bn 10y and $500m 30y). Leads are BofA, Citi and JPM. A1/A+. +35bps, SOFR +40bps, +55bps, +75bps and +87.5bps.