The story for the past 12 months clearly has been inflation. A year ago, we debated whether inflation would be transitory or not. You heard about ‘base effects’ caused by lapping depressed prices from early 2020, and once we were past those, inflation would drop.
However, the concern about inflation was clearly elevated versus any time in recent memory. A quick Google trends search shows how the number of searches on the topic increased last year.
Figure 1:
Figure 2: Cumulative Rate Hike Probability to December 2022
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Figure 3: Eurodollar December 2022 futures contract
Figure 4 & 5: Eurodollar December 2022 Vol2Vol and projected P&L
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Figure 6: 10-Year, 2-Year Yield Curve
Figure 7: SOFR June 2022-March 2023 futures spread