[MARKET ANALYSIS] USTs are firmer, but at the lower-end of last week's parameters into Bessent
- A modestly firmer start to the week for fixed income. Today, the docket is dominated by US Treasury Secretary Bessent on Iran at 19:00BST, a speech followed by a Q&A which will likely feature questions on last week’s long-end intervention.
- As it stands, USTs are at the upper-end of 108-08+ to 108-15 parameters. Despite the action taken to essentially pullback long-end yields last Wednesday, USTs themselves are towards the lower-end of that week’s 108-07+ to 108-30 parameters. Given this, Bessent may give commentary to verbally support the action taken.
- Note, the week also features the BLS preliminary benchmark revision, where any downward revision could knock the Fed from its assessment around the labour market; at the July FOMC, Chair Warsh described it as “solid”, “steady” and “more or less at equilibrium”, commentary that underscored the near-term focus on inflation over jobs. An update is also due from Warsh at Jackson Hole on Friday. However, given his distaste for forward guidance, it remains to be seen whether he will materially update on the economy and/or monetary situation.
- From a yield perspective, the US 10yr is holding around 4.71%, in the upper half of last week’s 4.63-7.75% band. For the 30yr, the same picture, currently around 5.25% vs 5.17-5.34% from last week.
- EGBs also bid, but only modestly. Europe is partaking in the Coalition of the Willing meeting in Kyiv, though the French and German leaders are remote due to a Saudi Arabia meeting and domestic political matters, respectively. Currently, Bunds are firmer by around 10 ticks and holding just below the 124.00 handle, toward the mid-point of last week’s 123.60 to 124.44 parameters.
- Gilts in-fitting, UK specifics light as the focus is on Ukraine and, more pertinently, the above US events. Note, the UK is set to pledge missile support to Ukraine, the financial details of which could be pertinent to the benchmark. As above, Gilts are firmer by about 10 ticks in c. 30 tick parameters, within last week’s 85.81 to 86.73 band.
Episodes in which a Treasury Secretary addresses the market directly after long-end intervention follow a familiar sequence: verbal reinforcement of the action, questions on whether the operation was one-off or repeatable, and the long end's response hinging on whether supply dynamics or rhetoric are seen as doing the heavy lifting. On prior occasions of yield-management commentary of this kind, the durable moves have come when remarks implied a change in issuance composition or buyback cadence rather than reassurance alone; purely verbal support has tended to fade within sessions. The distinction worth drawing is between the front end, which trades off the payroll benchmark revision and what it implies for the Fed's labour read, and the long end, where term premium and fiscal credibility set the price. A downward payroll benchmark revision has in past cycles shifted the committee's characterisation of the labour market with a lag, and in this instance would collide with a chair who has publicly downweighted guidance. The European legs are derivative rather than drivers, with EGBs and Gilts tracking UST direction absent domestic catalysts. The tells are the Q&A follow-ons on intervention mechanics, the size and sign of the revision, and any deviation from the chair's stated reluctance to guide at the symposium.