Caution with Fed flight plan puts pressure on rates and curve steepens

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Futures interest rates ended the session on a rise, more accentuated in intermediate and long maturities. Thus, the curve increased in slope, driven by the stress of the external scenario. The spike in the return of Treasuries and the increase in pressure on the exchange rate ended up mainly affecting long vertices.

At closing, the Interbank Deposit (DI) contract rate for January 2025 was at 9.925%, from 9.910% in Thursday’s adjustment, and the DI for January 2026 rose from 9.89% to 9.93 %. The DI for January 2027 had a rate of 10.21%, from 10.15%, and the DI for January 2029 projected a rate of 10.74%, from 10.65%.

April began with tension in global markets. Although the consumer spending price index (PCE), the Federal Reserve’s preferred measure of inflation, released on Friday, came in line with estimates, the speech by the institution’s president, Jerome Powell, also on Friday, weighed on business, combined with the surprise industrial data from the United States that came out this Monday morning.

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He stated that leaders do not see it as appropriate to cut interest rates until they gain confidence that inflation is on a sustained downward path. The Industrial PMI, calculated by the Institute for Supply Management (ISM), rose from 47.8 in February to 50.3 in March, more than expected (48.5) and showing expansion for the first time since the end of 2022.

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Budget bets on a 75 basis point cut in US interest rates this year were still the most likely scenario (33.8%) at the end of the afternoon, but the probability of a total of 50 points jumped from 24.8% to 30.5%. Furthermore, there was a decline in the chance of the Fed cutting 100 basis points, going from 23.6% on Thursday to 17.3% this Monday.

The interest rate on the ten-year T-Note broke 4.30% again, reaching 4.33% at the session high, and the dollar rose to R$5.0705 at its highest, to close at R$5.0591, even on a positive day for commodities, which are also a key variable for inflation. Both oil – which closed at the highest level since October – and iron ore rose, but grains fell.

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The reaction of DIs to the international scenario depends mainly on the performance of these assets. In the minutes, the Copom reiterated that there is no mechanical relationship between the conduct of North American monetary policy and the determination of the basic interest rate, but it will be attentive to transmission mechanisms for domestic prices.

The Fixed Income and Fund Distribution manager at Nova Futura Investimentos, André Alírio, believes that the market tends to settle in the coming days. “In the recent past, Powell said that not necessarily all indicators would have to be aligned to start cutting interest rates and I think that this idea should prevail. What we are seeing today should not last throughout the week,” he predicts.

The article is in Portuguese

Tags: Caution Fed flight plan puts pressure rates curve steepens

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