A Key Reflation Trade Support Level Just Broke

Jon Alternative Media, Blogosphere, Economy, Fiscal Policies, Government

While most eyes are focused on the longer-end of the curve and the butterfly-rotations in the Treasury complex…
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RBC’s Mark Orsley points out that there is a substantial repricing going on in the front-end that could bleed into the broader reflation theme.
Arguably the most popular way in rates to play reflation and the thought of a more aggressive Fed has been the EDZ7/EDZ8 steepener (buying Dec ’17 Eurodollars/selling Dec ’18 Eurodollars). Conventional wisdom was the curve had 2 hikes priced in, the Fed has been saying 3 hikes for 2018 so its 1 hike light and thus a buy (steepener). Fair enough and I was a believer of this theory as well. However, Dudley really threw the Eurodollar market for a loop when he:
talked down the Fed’s urgency to hike revealed that the taper of reinvestments represents a hike or two showed us that the markets current pricing for terminal rates is pretty fair when he said there is 100-150bps more of hikes (was priced)

This post was published at Zero Hedge on Apr 6, 2017.