TREASURY WRAP: T-NOTE FUTURES (U5) SETTLE 19 TICKS HIGHER AT 112-04+

Analysis details (20:20)

T-Notes bull steepen as Powell gives nod to September rate cut. At settlement, 2-year -10.2bps at 3.690%, 3-year -10.4bps at 3.640%, 5-year -10.2bps at 3.757%, 7-year -9.0bps at 3.979%, 10-year -7.4bps at 4.258%, 20-year -5.4bps at 4.851%, 30-year -3.9bps at 4.885%. 

INFLATION BREAKEVENS: 1-year BEI +4.1bps at 3.293%, 3-year BEI +3.5bps at 2.777%, 5-year BEI +3.8bps at 2.513%, 10-year BEI +2.6bps at 2.403%, 30-year BEI +0.9bps at 2.289%.

THE DAY: T-Notes edged higher ahead of the speech from Fed Chair Powell at Jackson Hole, before rallying thereafter as Powell gave a nod to a September rate cut. The Fed Chair was dovish, and more so than what participants were expecting, as he alluded to a September rate cut, even with data due between now and the meeting. He also echoed arguments of the dovish dissenters in that tariff inflation is likely to be a one-time impact, while also suggesting a permanent increase to prices is unlikely due to downside risks in the labour market. This saw T-Notes rally across the curve, particularly the short-end on the prospects of more dovish policy. However, Powell did still suggest some sense of caution, as the stability of the unemployment rate allows the Fed to proceed carefully - potentially indicating one cut in September before reassessing. There was no US data today, with all eyes on Jackson Hole, which also saw Fed's Hammack and Collins speak - Hammack echoed her hawkish tone and did not share Powell's enthusiasm for rate cuts, while Collins is waiting to see the data before committing. Money markets are pricing in a 25bps rate cut for September with an 80% probability at time of writing, up from the 72% pre-Powell, while markets are back to fully pricing in two 25bps rate cuts this year.   

SUPPLY

T-Notes/Bonds

• US to sell USD 69bln of 2-yr notes on August 26th, USD 28bln of 2-yr FRN and USD 70bln of 5-year notes on August 27th, and USD 44bln 7-yr notes on August 28th; all to settle on Sept 2

Bills:

• US to sell USD 85bln of 26-wk bills and USD 82bln 13-wk bills on August 25th


• US to sell USD 73bln of 26-wk bills on August 25th

STIRS/OPERATIONS

• Market Implied Fed Rate Cut Pricing: September 20bps (prev. 19bps), Oct 34bps (prev. 30bps), Dec 54bps (prev. 48bps).


• NY Fed RRP op demand at USD 36bln (prev. 25bln) across 16 counterparties (prev. 17).


• EFFR at 4.33% (prev. 4.33%), volumes at USD 117bln (prev. 115bln) on August 21st.


• SOFR at 4.32% (prev. 4.31%), volumes at USD 2.702tln (prev. 2.704tln) on August 21st.

22 Aug 2025 - 20:20- ForexData- Source: Newsquawk