TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLE 2 TICKS LOWER AT 104-13+

T-notes steepen as short-end losses reversed on dovish Fed Williams' remarks. At settlement, 2-year -4.2bps at 4.889%, 3-year -2.1bps at 4.989%, 5-year -0.8bps at 5.064%, 7-year +1.1bps at 5.161%, 10-year +2.3bps at 5.259%, 20-year +4.0bps at 5.645%, 30-year +4.3bps at 5.593%.

THE DAY: The yield curve steepened on Tuesday, with front-end yields lower while long-end yields extended recent gains. Williams remarks, lower oil prices on hopes of US-Iran diplomacy, and the DoE announcing it will release an additional 40mln bbls of oil from the SPR (received poor demand when offered in June) helped support the front end. Vice Chair Williams sees no need for urgency after the September rate hike, arguing there is time to gather more information to provide greater clarity on the underlying economic trends and associated risks in support of setting the appropriate monetary policy. Now, an Oct hike/hold is priced 50/50 (prev. 70% hike).

Meanwhile, Paramount Skydance (PSKY) kicked off its high-grade bond sale, looking to raise USD 32bln in what Bloomberg reports would be the fifth-largest US high-grade sale on record. The offering, which will fund the majority of its Warner Bros. Discovery (WBD) acquisition, likely weighed on Treasuries across the curve pre-Williams through rate-lock positioning associated with the deal.

Other Fed speak included Barr, who stressed a need to recalibrate policy, noting his base case is that further policy adjustments are likely needed. 2027 voter Goolsbee said nothing in the Fed Reserve Act says to make sure the bond market is happy; stock markets aren't surprised. He added that in the dot plot, he is one of the more optimistic folks at the Fed. Lastly, 2028 voter Musalem said about half of inflation now is from persistent demand pressure and monetary policy remains somewhat accomodative even after the last rate hike.

Elsewhere, August JOLTS fell notably to 7.079mln from 7.335mln, below the 7.23mln forecast. The vacancy rate ticked higher, while the quits rate was unchanged. The softer report provided some counterweight to recent labour-market strength, although Fed Chair Warsh has stressed his preference for assessing the data as a whole rather than individual releases. Consumer confidence also tumbled to 81.9 from 88.6 (exp. 89.2), with views on current and prospective business and labour-market conditions deteriorating.

Attention now turns to Friday's NFP report for further evidence on the strength of the labour market and implications for Fed policy through year-end, although the Fed's recent focus has remained firmly on inflation. We also see the US PCE report Wednesday and ISM Manufacturing PMI on Thursday.

Supply

Bills

• US sold 6-week bills at a high rate of 3.970%, B/C 2.82x; sells 1-year bills at a high rate of 4.400%, B/C 3.07x
• US to sell USD 95bln of 8-week bills and USD 100bln of 4-week bills on Oct 1st; To sell USD 75bln of 17-week bills Sept 30th; All to settle Oct 6th.

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 12.9bps (prev. 17bps), Dec 33.6bps (prev. 38.3bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 110bln (prev. USD 112bln) on September 28th
• SOFR at 3.90% (prev. 3.90%), volumes at USD 2.964tln (prev. USD 2.914tln) on September 28th
• NY Fed RRP op demand at (prev. 0.85bln) across counterparties (prev. 3) on September 29th
• Treasury Buyback [Liquidity Support, 1-10year TIPS, max USD 750mln]: