Short end US rates look mispriced going into FOMC

As we approach the FOMC today, my analysis tells me short end rates are mispriced and offer an asymmetric trading opportunity.

To start off with, this is where the market is right now:

Bloomberg WIRP

To summarize, the above table shows half a hike priced in for the rest of 2023, followed by 81 bp of cuts by the end of 2024. Fed funds doesn’t trade out to the end of 2025, but the SOFR Dec 2024 contract prices in another 70 bp of cuts in 2025. We also have 10 yr and 30 yr Treasuries trading at 4.36 and 4.42 bp respectively, indicating where long run expectations are.