TREASURY WRAP: T-NOTE (U4) SETTLES 13 TICKS HIGHER AT 111-06+

Analysis details (20:05)

T-Notes caught a bid after PCE ahead of key risk week. At settlement, 2s -5.1bps at 4.392%, 3s -5.9bps at 4.204%, 5s -6.3bps at 4.082%, 7s -6.2bps at 4.122%, 10s -5.8bps at 4.198%, 20s -5.2bps at 4.540%, 30s -4.6bps at 4.454%.

INFLATION BREAKEVENS: 5yr BEI -0.9bps at 2.292%, 10yr BEI -1.3bps at 2.257%, 30yr BEI -1.1bps at 2.260%.

THE DAY: T-Notes meandered overnight with little reaction seen to the cooler than expected July Tokyo CPI, although Bloomberg source reports in the European morning that Japan's Ministry of Finance wants the BoJ to cut bond purchases gradually, took JGBs higher, with T-Notes following suit. Nonetheless, this pared heading into the PCE data. The data itself saw core slightly above consensus but it did little to change the Fed narrative and as such saw two-way price action with T-Notes knee jerking to session lows of 110-23+, before swiftly moving higher. T-Notes peaked just ahead of the Final UoM data for July, and topped out at 111-08+, while a slight UoM headline sentiment beat and slight upside in 5yr inflation expectations capped the bid, with T-Notes paring thereafter. There was little else of note that moved T-notes, although an interview with ECB's Schnabel via Faz was published, where she stressed services inflation is showing that the last mile of the inflation fight is especially difficult, and that a first rate cut does not automatically lead to a series. Next week is a huge risk week with the BoJ, FOMC, Quarterly Refunding, BoE  and ISM Manufacturing PMI all scheduled. Attention on the BoJ will lie on whether they opt to lift rates, and also its plans on JGB purchases. The Fed is widely expected to leave rates on hold, but we will be looking to see how they frame the recent cooling economic data and see if they open the door to a widely expected cut in September, although Powell will likely stress data dependence. The ISM Manufacturing PMI will tell us more about that sector of the economy with the latest S&P Global Manufacturing PMI dipping into contractionary territory, while the Quarterly Refunding is expected to see little fireworks, although potential updates on the debt ceiling and an updated buyback schedule will be eyed. 

STIRS:

• Market Implied Fed Rate Cut Pricing: September 28bps (prev. 28bps D/D), November 44bps (prev. 45bps), December 68bps (prev. 67bps).


• NY Fed RRP op demand at USD 382tln (prev. 377bln) across 70 counterparties (prev. 69).


• SOFR at 5.35% (prev. 5.34%), volumes at USD 2.129tln (prev. 2.083tln).


• EFFR at 5.33% (prev. 5.33%), volumes at USD 88bln (prev. 86bln).

26 Jul 2024 - 20:05- Fixed IncomeData- Source: Newsquawk