St. Louis Fed Bullard Spooks Markets Again, Brings Rates Volatility To Levels Not Seen Since March 2020

Over the past month, the market has come to expect 3 more hikes by the end of 2023, while the terminal rate in 5 years rose by less than one hike, with rates now pricing in almost 2/3 chance of a Fed cut in 2024 (reversal of policy mistake)

Published ET

US Rates Volatility | Sources: ϕpost, Refinitiv data

US Rates Volatility | Sources: ϕpost, Refinitiv data

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  • The treasury yield curve steepened, with the 1s10s spread widening 0.1 bp, now at 88.2 bp (YTD change: -24.6bp)
  • 1Y: 1.1040% (up 6.7 bp)
  • 2Y: 1.5702% (up 8.3 bp)
  • 5Y: 1.9080% (up 7.5 bp)
  • 7Y: 1.9891% (up 6.8 bp)
  • 10Y: 1.9858% (up 6.8 bp)
  • 30Y: 2.2854% (up 5.1 bp)
  • US treasury curve spreads: 3m2Y at 110.7bp (down -7.2bp today), 2s5s at 34.1bp (up 0.6bp), 5s10s at 7.5bp (down -0.2bp), 10s30s at 29.8bp (down -0.4bp)
  • Treasuries butterfly spreads: 1s5s10s at -79.3bp (down -2.8bp), 5s10s30s at 21.8bp (up 0.3bp)
US Treasury Curve Spreads | Sources: ϕpost, Refinitiv dataUS Treasury 2s10s Spread Spot & Forwards | Sources: ϕpost, Refinitiv data


  • Fed Funds futures now price in 39.6bp of Fed hikes by the end of March 2022, 72.3bp (2.89 x 25bp hikes) by the end of May 2022, and price in 6.55 hikes by the end of December 2022
  • 3-month Eurodollar futures (EDZ) spreads price in 37 bp of hikes in 2023 (equivalent to 1.5 x 25 bp hikes) and -16.0 bp of hikes in 2024 (equivalent to 64% chance of a 25 bp rate cut)
2022 Hikes Implied By Fed Funds Futures | Sources: ϕpost, Refinitiv data Eurodollar Futures Implied Yields


WTD Change In US TIPS Breakevens | Sources: ϕpost, Refinitiv dataUS TIPS Real Yields | Sources: ϕpost, Refinitiv data


  • USD swap rate implied volatility (USD 1 Month into 1 Year ATM Swaption) up 12.5% at 114.0%
USD 3M Into 2Y Swaptions Implied Volatilities | Sources: ϕpost, Refinitiv data3M USD LIBOR-OIS Spot Spread | Sources: ϕpost, Refinitiv data


  • Germany 5Y: 0.037% (up 2.4 bp); the German 1Y-10Y curve is 1.2 bp steeper at 91.2bp (YTD change: +47.3 bp)
  • Japan 5Y: 0.044% (up 0.6 bp); the Japanese 1Y-10Y curve is 0.4 bp flatter at 28.4bp (YTD change: +12.3 bp)
  • China 5Y: 2.508% (down -1.2 bp); the Chinese 1Y-10Y curve is 2.6 bp steeper at 89.0bp (YTD change: +38.0 bp)
  • Switzerland 5Y: 0.026% (down -4.1 bp); the Swiss 1Y-10Y curve is 4.2 bp flatter at 88.4bp (YTD change: +31.9 bp)
Changes In Global Inflation Expectations | Sources: ϕpost, Refinitiv data Changes In Global Rate hikes Expectations | Sources: ϕpost, Refinitiv data