U.S. Treasuries are moving higher today in a curve-steepening trade following some disappointing housing start/building permit data. The S&P 500 is set to open up less than a point at 2,433.2 and the U.S. Dollar Index is losing 0.09% at 97.34. WTI crude for August delivery is up 0.78% to $45.03/bbl. and gold is up 0.18% to $1,257/troy oz.
The fed funds futures market is showing only a 13% probability for a rate hike at the September FOMC meeting, according to the CME website. The cumulative probability for another hike by the end of 2017 is 45%. Some analysts are expecting a pause in September because the FOMC could announce the specific date for a beginning to the unwinding of its $4.5 tln balance sheet. As announced this Wednesday, along with the 25 basis points hike in the fed funds target range to 1.00-1.25%, the Fed will set monthly caps on the amount of reduction in Treasury and mortgage security holdings. Those caps will begin at $6 bln/month for Treasuries and $4 bln/month for mortgages and the caps will increase by $6 bln and $4 bln, respectively, every quarter. Once those caps touch $30 bln/month and $20 bln/month, they will remain steady until the Fed has reduced the balance sheet to its desired size. That implies $300 bln of unwinding in the first year of the process, which is set to begin near the end of this year or "relatively soon," according to Fed Chair Yellen press conference on Wednesday
2-yr: -3 bps to 1.33%;
5-yr: -2 bps to 1.75%;
10-yr: unch at 2.16%;
30-yr: unch at 2.78%.