With at least one Fed speaker mentioning Retail Sales as having a bearing on the Fed’s debate between a 75bp and 100bp hike at the upcoming July meeting, the market waited patiently for this morning’s data. With a 1.0 vs 0.8 result, the market didn’t really get a definitive verdict. Yes, it’s stronger, but not by enough as to make the Fed’s choice obvious. Traders are making similar conclusions with Fed Funds Futures recovering after initial volatility.
The rate hike outlook changed most notably for the nearer meetings (note September in the following chart moved down the most).
Longer-dated yields are doing even better with 10s set to easily hold on to this week’s narrow range.
A notable drop in inflation expectations (via the consumer sentiment data) helped solidify the rally and/or resilience across the curve.