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While it’s obvious to anyone who’s been following US Rates that Clarida (with Powell, Brainard & Williams) is the best representation of the median view of the FOMC and Bostic and co. are fringe voices, this distinction, though in focus, is actually quite irrelevant. A thread.
Some context: We have had a strong start to the year for steepeners, especially in the US, but increasingly across the world. So now the question is, whether it's time to short 5s or are 10s still the better short and how does CB speak fit into all this?
First, where we at! 2Y OIS at 9bps and 5Y OIS at 40bps implies markets expect EFFR to average 60bps between 2023-25. That means shorting 5s would be profitable only if hike expectations move much closer to end-2022, early 2023.
In Eurodollars, the price at which the market is discounting a hike depends on the level of FRA-OIS. For contracts expiring after June-23, that price is ~99.40 (25+25+10) – EDU3 basically. So, the equivalent trade (to shorting 5s) is long EDM2-M3 at 18bps.
Bostic made quite the splash when he said he’s open to tapering this year and potentially lifting off 2H 2022 (shorting 5s). Clarida, OTOH seemed more comfortable with Fed’s latest guidance of rates on hold till 2023 and the current QE regime continuing till the end of 2021 (10s)
However, what's getting overlooked is that both Bostic and Clarida agree that tapering will take place after substantial progress has been made towards Fed’s goals and rate hikes will require actual, sustained inflation above 2% and a tight labor market.
The only difference is that while Clarida believes that these goals will not be met till 2023, and Bostic believes they will. This distinction (knowing the central view from the fringe) would have been important when they acted based on their expectations, but not anymore.
Within the framework adopted in 2020, the Fed will act ONLY on actual data, not views, which makes this fringe vs central distinction irrelevant. They're on hold as long as the data needs them to be, and EXPECTING the data to improve by 2022/3 won’t automatically make it happen.
Of course, the vaccine and Senate flip are huge tailwinds and likely to give an optimistic tilt to most of Fed speak, but the speeches that really matter from here on are the kind that clarify/modify the meaning of “substantial progress” in the context of existing data.
Beyond that, it simply comes down to whether one believes that Core PCE will start averaging 2% and U3 hit 3.7% much sooner than 2023. IMO, 10s are still better than 5s, but not coz that's consistent with Clarida's views, but because his views are consistent with mine 
