TREASURY WRAP: T-NOTE (Z4) SETTLED 7+ TICKS HIGHER AT 115-13+

Analysis details (20:35)

T-Notes bull steepen as traders increase bets on 50bp rate cut next week. At settlement, 2s -7.0bps at 3.578%, 3s -4.1bps at 3.436%, 5s -3.8bps at 3.428%, 7s -3.4bps at 3.529%, 10s -2.7bps at 3.653%, 20s -2.1bps at 4.051%, 30s -1.3bps at 3.983%. 

INFLATION BREAKEVENS: 5yr BEI +1.8bps at 2.098%, 10yr BEI +1.5bps at 2.076%, 30yr BEI +1.8bps at 2.104%.

THE DAY: T-Notes bull steepened as traders continue to weigh a 50bps rate cut. On Thursday, WSJ's Timiraos noted that a former senior adviser to Powell highlighted that it is a close call between 25 or 50bps, while former NY Fed President Dudley said there is a strong case for a 50bps rate cut. Within the FT Fed Preview, they also noted that 50bps was still on the table. Meanwhile, JPMorgan reiterated its call for the Fed to kick things off with a 50bp rate cut next week, however, Goldman Sachs still sees 25bps Fed easing next week and for each remaining 2024 meeting. The commentary has seen money markets start to price in either a 25 or 50bp rate move as a near coin flip. The dovishness saw T-Notes bull steepen with 2s10s +4bps on the day with some of the Fed Funds move supported by chunky block trades throughout the session ahead of next week's rate decision. Elsewhere, on prices the US import/export prices declined in August, another welcome sign for the Fed. Meanwhile, the UoM September Consumer Sentiment rose by more than expected with an increase in both forward-looking expectations and current conditions. Meanwhile, the 1yr inflation expectations dipped further to 2.7% from 2.8%, marking the lowest print since December 2020. The 5yr, however, ticked up to 3.1% from 3.0%. 

STIRS

• Market Implied Fed Rate Cut Pricing: September 37bps (prev. 33bps D/D), November 76bps (prev. 71bps), December 117bps (prev. 110bps).


• NY Fed RRP Op demand at USD 285bln (prev. 294bln) across 62 counterparties (prev. 58)


• SOFR at 5.33% (prev. 5.32%), volumes at USD 2.087tln (prev. 2.308tln).


• EFFR at 5.33% (prev. 5.33%), volumes at USD 111bln (prev. 105bln).

13 Sep 2024 - 20:35- Fixed IncomeEconomic Commentary- Source: Newsquawk