Key Takeaways with Craig

US Equity Index prices began the day in positive territory but broke after Federal Reserve Chairman Jerome Powell suggested that a 50 basis point hike to the Fed Funds target rate could be considered at the May FOMC meeting.  The major US Indexes were down by between 1 and 2.5% while US Treasury rates rose.  For the second day in a row, we saw the US Treasury yield curve flatten with the 2-Year Micro Yield up nearly 12 basis points, the 10-Year up about 7.5 and the 30-Year up about 6 basis points.  Implied volatility in CME’s Treasury options rose and is trading near 3-month  highs. 

All of this was not lost on CME’s Fed Funds futures markets which moved on the news.  This was reflected in CME’s FedWatch tool which now reflects a 70% chance that the Fed Funds target rate will by 125 basis points higher than it currently is by the June meeting; up from just 50% yesterday.  It also reflects a 55% chance that the rate is 175 basis points higher than the current rate by the July meeting; that’s up from 38% yesterday. 

We used CME settlement data in the Micro 2 and 10-Year Treasury yield futures contracts to graph the yield since the beginning of the year in the top graph below.  In the lower graph, we graphed the difference between the 10 and 2-Year yields to illustrate the flattening of the curve that we’ve seen over the last few days.  

Today's Future Price Action

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