TREASURY WRAP: T-NOTE FUTURES (H6) SETTLE HALF A TICK LOWER AT 112-16

Analysis details (20:25)

 T-notes settle little changed amid commentary from Fed's Waller and the 20-year bond auction. At settlement, 2-year +0.6bps at 3.485%, 3-year +0.8bps at 3.529%, 5-year +0.3bps at 3.697%, 7-year +0.6bps at 3.908%, 10-year +0.4bps at 4.153%, 20-year +0.8bps at 4.785%, 30-year +0.7bps at 4.830%.

INFLATION BREAKEVENS: 1-year BEI +6.0bps at 2.456%, 3-year BEI +1.0bps at 2.315%, 5-year BEI +0.8bps at 2.178%, 10-year BEI +0.5bps at 2.216%, 30-year BEI -0.4bps at 2.218%.

THE DAY: T-notes ultimately settled flat on Wednesday with attention turning to US CPI on Thursday, albeit just the Y/Y figures as the M/M numbers will not be released due to the missing October data from the government shutdown. T-notes saw two-way trade with pressure seen overnight and in the morning before paring somewhat in US trade. Upside coincided around the time of commentary from Fed's Waller, who suggested that rates are currently 50-100bps above neutral right now, indicating a need for at least two more rate cuts. However, he is in no rush to lower rates again, given the outlook, he also called for a moderate pace of easing. T-notes had then sold off ahead of the 20-year bond auction, which was ultimately in line with recent averages but better than the prior (see more below). Once the auction was out the way, T-notes resumed gradually higher to ultimately settle little changed with yields across the curve firmer by no more than 1bps at settlement. Other updates included reporting from Politico suggesting Trump officials have privately raised doubts over Hassett being the next Fed Chair, criticising his current effectiveness as NEC Director. Focus on Thursday is the CPI and Jobless Claims data, while next week's 2-, 5- and 7-year note announcements are due - expected at USD 69, 70 and 44bln, respectively. The 2-year FRN is expected at USD 28bln. Elsewhere, the BoE and ECB rate decisions are due - BoE widely expected to cut by 25bps, with the ECB widely expected to keep rates on hold. 

SUPPLY:

Notes

• Overall, an average 20-year bond auction. The US Treasury sold USD 13bln of 20-year bonds at a high yield of 4.798%, stopping through the when issued by 0.1bps. The 0.1bps stop through is an improvement from the prior 0.2bps tail, but not as strong as the 0.5bps stop through average. The bid-to-cover jumped to 2.67x from 2.41x, a touch above the 2.65x six auction average. Meanwhile, Direct demand fell to 22.2% from 29.1%, below the 25.3% average, but Indirect demand rose to 65.2% from 59.5%, above the 63.7% average. This left Dealers with 12.6% of the auction, above the prior 11.4% and the average 11.0%.


• US Treasury to sell USD 24bln of 5-year TIPS on 18th Dec; to settle on 31st Dec.

Bills

• US sold 17-week bills at a high rate of 3.540%, B/C 3.27x


• US Treasury to sell USD 80bln (prev. 80bln) of 8-week bills and USD 80bln (prev. 85bln) of 4-week bills on December 18th; all to settle Dec 23rd

STIRS/OPERATIONS

• Market Implied Fed Rate Cut Pricing: January 6bps (prev. 6bps), March 14.4bps (prev. 14.4bps), April 21.8bps (prev. 21.6bps), December 59.8bps (prev. 59.8bps).


• NY Fed RRP Op demand at USD 10.4bln (prev 1.55bln) across 17 counterparties (prev. 2)


• NY Fed Repo Op demand at USD 0.001bln (prev. 4bln) across two operations.


• EFFR at 3.64% (prev. 3.64%), volumes at USD 95bln (prev. 97bln) on December 16th.


• SOFR at 3.69% (prev. 3.75%), volumes at USD 3.319tln (prev. 3.270tln) on December 16th.


• Treasury Buyback (3- to 5-year, Liquidity Support; Max purchase amount USD 4bln): Buys 3.7bln of 11.94bln offered, accepts 16 of 48 eligible issues. Offer to cover: 3.23x


• NY Fed Reserve Management Bill Purchases: Buys USD 8.17bln of the USD 58.21bln submitted. Offer to cover: 7.12x

17 Dec 2025 - 20:25- Fixed IncomeData- Source: Newsquawk