June 14, 2022
Bond markets are now priced for 75bp tomorrow, 75bp for July, 50bp for September, 50bp for November, 25bp for December and 25bp for February ’23. Altogether, that’s 300bp of rate hikes and if that’s the destination, equity markets would prefer to get their sooner rather than later. A 50bp hike tomorrow would likely take 10-year breakeven yields and nominal bond yields higher with the SPX more likely to test support at 3,500. A 75bp hike is most likely given yesterday’s coordinated messaging with markets focused on updated guidance (prior guidance for June/July was 50bp) and any changes to QT. The probability for a 100bp hike tomorrow isn’t zero, and that might be the best scenario for equities after an initial pullback. A 100bp hike has the best chance to push yields lower and return equity volatility (VIX) to the mid 20s.