TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 6+ TICKS LOWER AT 108-21

Treasury yields rose across the curve on Wednesday on hot-leaning US data and oil prices paring overnight losses. At settlement, 2-year +4.6bps at 4.222%, 3-year +4.8bps at 4.283%, 5-year +4.5bps at 4.373%, 7-year +4.5bps at 4.504%, 10-year +3.9bps at 4.662%, 20-year +3.1bps at 5.177%, 30-year +2.6bps at 5.183%.

THE DAY: Treasury yields rose across the curve on Wednesday, with front-end yields leading the move higher and resulting in a bear flattening of the curve. The move was driven by hot-leaning inflation data alongside resilient economic activity, while the rebound in oil prices from session lows provided an additional source of pressure.

On the data, core PCE rose 0.2% M/M in July, in line with expectations, while headline PCE rose 0.2%, above the 0.1% forecast, with the Y/Y rate also above expectations at 3.7%. Core PCE Y/Y was in line at 3.3%. Alongside the PCE report, Q2 GDP rose 1.5%, matching forecasts, although the Q2 price index rose 6.4%, above the 6.3% forecast, while core PCE prices rose 3.6% in Q2, above the 3.4% consensus. Durable Goods were also stronger than expected. The combination of resilient activity and hot-leaning price data pressured Treasuries across the curve, particularly at the front end. Overall, the data did little to materially alter the Fed policy outlook but continued to show that inflation remains elevated. Attention now turns to the remaining data ahead of the September FOMC, including another NFP, CPI and PPI report.

Meanwhile, oil prices rebounded from morning lows amid punchy Iranian commentary and reports suggesting Iran and Oman are still working towards an agreement regarding the Strait of Hormuz. The developments offset some of the optimism seen in late trade on Tuesday following RIA's report that a US-Iran ceasefire agreement, including freedom of navigation through Hormuz, could soon be announced.

The US Treasury also sold USD 70bln of 5-year notes, which tailed the WI by just 0.2bps. The minimal tail, above-average bid-to-cover, strong direct participation and low dealer allocation pointed to a solid reception, particularly given the lower outright yield compared with July. Indirect participation remained below average, preventing the result from being particularly strong, but demand was clearly improved from the soft July offering.

• US sold USD 70bln of 5-year notes; Tail 0.2bps.
• US to sell USD 44bln of 7-yr notes on Aug. 27th; to settle on Aug. 31st

• US sold 17-wk bills at 3.750%, B/C 3.09x
• US to sell USD 100bln of 4-wk bills and USD 90bln of 8-wk bills on Aug. 27th; all to settle on Sept. 1st

• Fed Hike Pricing via CME FedWatch: Sept 10.0bps (prev. 10.0bps), (prev. 26.1bps).
• EFFR at 3.63% (prev. 3.63%), volumes at USD 109bln (prev. USD 99bln) on August 25th
• SOFR at 3.66% (prev. 3.65%), volumes at USD 2.916tln (prev. USD 2.919tln) on August 25th
• NY Fed RRP op demand at 0.70bln (prev. 0.41bln) across 4 counterparties (prev. 6) on August 27th
• NY Fed T-Bill Purchases (4-11 month): Accepts USD 2.12bln of USD 21.96bln offered; Offer-to-cover 10.35x