TREASURY WRAP: T-NOTE FUTURES
Yield curve steepens in quiet trade as attention turns to FOMC Minutes. At settlement, ____
THE DAY: The Treasury curve steepened on Monday in relatively quiet trade, with the move led by the long end. The 30-year yield tested 5.300%, moving above the peaks seen following the July FOMC, when Chair Warsh's avoidance of forward guidance and apparent comfort with tighter financial conditions helping the Fed achieve its goals triggered a pronounced steepening of the curve.
The highlight this week will be the FOMC Minutes on Wednesday, where attention will be on whether the preference for tighter policy extended beyond the three dissenters and whether other participants saw a case for a July hike. However, markets may ultimately look through the minutes given their backward-looking nature, particularly as they will not capture the subsequent softer inflation and employment data that have seen participants pare Fed rate hike expectations.
Oil prices settled ___ amid mixed geopolitical messaging. President Trump told Fox that the US is in contact with the IRGC through back channels, although Iran subsequently pushed back on the claim. Reports also suggested that a 60-day extension of the US-Iran ceasefire has been reached, although at the time of writing there has been no confirmation from either the US or Iran. Meanwhile, Trump threatened military action against Oman if it obstructs efforts to reopen the Strait of Hormuz.
SUPPLY
Notes/Bonds
- US to sell USD 16bln of 20-year bonds on August 19th and USD 8bln of 30-year TIPS on August 20th; all to settle August 31st Bills
- US to sell USD 95bln of 6-week bills on August 18th on August 18th, USD 92bln of 13-week bills and USD 79bln of 26-week bills on August 17th; all to settle August 20th.
STIRS / OPERATIONS
- Fed Hike Pricing via CME Fed Watch: Sept 8.2bps (prev. 8.2bps), Dec 22.1bps (prev 24.2bps).
- EFFR at 3.63% (prev. 3.63%), volumes at USD 99bln (prev. USD 106bln) on August 14th
- SOFR at 3.62% (prev. 3.62%), volumes at USD 2.957tln (prev. USD 2.932tln) on August 14th
- NY Fed RRP op demand at 0.45bln (prev. 0.725bln) across 1 counterparties (prev. 1) on August 13th
Long-end-led steepening in otherwise quiet trade is a familiar pattern when the market's focus sits on term premium and the policy stance rather than near-term rate expectations: the front end stays anchored by unchanged Fed pricing while the back end does the moving, which is what the day's CME FedWatch prints (steady September, slightly pared December) confirm. The wrap's own framing flags the tell, that the 30-year moved above the peaks seen after the last FOMC, when a chair's comfort with tighter financial conditions did the steepening work; commentary of that kind from the podium has historically mattered more for the curve than the decision itself. The next focal point is the FOMC Minutes, with the open question being breadth, whether the hawkish preference extended beyond the known dissenters, though minutes are routinely faded as backward-looking when subsequent data has already moved pricing. Supply is the other mechanical channel in play: a 20-year bond and 30-year TIPS auction land in a thin late-summer tape, and long-end auctions into a steepening move have tended to test concession appetite, with tails or stops-through setting the tone for the following sessions. The oil leg, ceasefire extension reports plus threats around Hormuz transit, feeds the same long end through the inflation-risk channel, which is why crude and the 30-year are the joint watch points into Wednesday.