TREASURY WRAP: T-NOTE FUTURES (M5) SETTLE 10 TICKS LOWER AT 109-18+

T-notes steepened as Warsh stuck to script, offering few fresh hawkish surprises. At settlement, 2-year +0.6bps at 4.176%, 3-year +1.3bps at 4.190%, 5-year +1.4bps at 4.237%, 7-year +1.7bps at 4.351%, 10-year +1.8bps at 4.479%, 20-year +1.4bps at 4.972%, 30-year +1.6bps at 4.967%.

THE DAY: The Treasury curve steepened on Wednesday, with front-end yields moving lower while longer-dated yields edged higher. The move appeared to reflect an unwind of some of the hawkish positioning that had built ahead of Chair Warsh's appearance at the ECB's Sintra Forum.

Warsh largely reiterated the message delivered at his first FOMC press conference. He emphasised that the Federal Reserve remains focused on achieving price stability, while once again refusing to provide any forward guidance on the future path of interest rates. He did, however, acknowledge that inflation expectations have eased during his first four weeks as Chair. With little in the way of fresh hawkish rhetoric, front-end Treasuries found support as markets pared some of the recent move higher in yields.

Economic data was mixed. ADP employment came in below expectations, although the Revelio Labs payroll estimate increased notably from the prior month ahead of Thursday's official nonfarm payrolls report. Elsewhere, the ISM Manufacturing PMI narrowly missed forecasts, while the employment component improved and prices paid eased.

The geopolitical backdrop remained largely unchanged. Markets continue to await further updates from indirect US-Iran negotiations, with Iranian officials reiterating that discussions remain focused on implementing the recently agreed memorandum of understanding. Oil prices continued to weaken, with WTI falling below USD 69/bbl as geopolitical risk premia continued to unwind.

Attention now turns squarely to Thursday's US nonfarm payrolls report, which will provide another key assessment of labour market conditions ahead of the July FOMC meeting.

SUPPLY

Bills

• US to sell USD 85bln of 4-week bills (prev. 70bln) and USD 85bln of 8-week bills (prev. 75bln) on July 2nd; all to settle July 7th

STIRS / OPERATIONS

• Fed Pricing: +36bps (prev. Dec +35bps)
• EFFR at 3.63% (prev. 3.63%), volumes at USD 98bln (prev. USD 123bln) on June 30th
• SOFR at 3.68% (prev. 3.62%), volumes at USD 3.418tln (prev. USD 3.126tln) on June 30th
• NY Fed RRP op demand at 1.001bln (prev. 26.90bln) across 4 counterparties (prev. 10) on July 1st