TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 11 TICKS LOWER AT 108-18+

Treasury curve bear steepens in quiet trade despite soft retail sales. At settlement, 2-year +2.2bps at 4.171%, 3-year +2.8bps at 4.247%, 5-year +3.9bps at 4.362%, 7-year +4.5bps at 4.517%, 10-year +4.7bps at 4.696%, 20-year +5.6bps at 5.266%, 30-year +4.8bps at 5.267%.

THE DAY: Treasury yields rose across the curve on Friday, with the long end generally leading the move higher in a bear steepening, although there was no obvious catalyst behind the price action amid relatively quiet trade.

US economic data was soft but had little lasting impact. July Retail Sales disappointed expectations, while the preliminary University of Michigan survey showed a notable deterioration in consumer sentiment. The headline sentiment index fell to 51.0 from 55.2, below the 54.5 forecast, with Current Conditions declining to 51.8 from 54.8 and Consumer Expectations falling to 50.6 from 55.4. However, inflation expectations were less encouraging, with the 1-year measure rising to 4.3% from 4.2%, while the 5-year measure remained elevated at 3.3%. Despite the softer activity and sentiment data, Fed pricing was little changed, with money markets continuing to assign around a 67% probability of the Fed remaining on hold in September.

Oil prices were around USD 1/bbl firmer, potentially providing some modest upward pressure on yields through the inflation channel, although there was little fresh on the geopolitical front and the move in crude was relatively contained. On which, US Treasury Secretary Bessent said they will implement unprecedented measures on Iran and are conducting a maximum pressure campaign against the country, while the UKMTO said a tanker was struck by a drone while transiting outbound through the Strait of Hormuz.

Overall, there appeared to be no single catalyst behind the bear steepening, with the long end underperforming despite soft US data and little change in Fed expectations. The move may instead reflect some position adjustment and continued term-premium pressure at the long end following the recent backup in yields, particularly with the Fed providing little forward guidance on the future policy path.

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. 8.1bps), Dec 24.2bps (prev 23.1bps).
EFFR at 3.63% (prev. 3.63%), volumes at USD 106bln (prev. USD 106bln) on August 13th
SOFR at 3.62% (prev. 3.62%), volumes at USD 2.932tln (prev. USD 2.943tln) on August 13th
NY Fed RRP op demand at 0.45bln (prev. 0.725bln) across 1 counterparties (prev. 1) on August 13th

Bear steepening on a day of soft activity data and unchanged Fed pricing is a familiar pattern in this cycle: the front end stays anchored by the policy path while the long end sells off on term-premium and supply considerations rather than on the data itself. The tell here is the segmentation, with the 20-year leading the backup directly ahead of a 20-year reopening, a sequence that has recurred around long-bond supply where dealers make concession room and the auction tail then either validates or reverses the move. The inflation-expectations leg of the Michigan survey matters more for the back end than the headline sentiment miss, since elevated long-run expectations are precisely the input that keeps term premium bid even as growth data softens. The Hormuz incident and the Iran rhetoric are the kind of crude-linked inflation impulse that tends to steepen rather than shift the curve in parallel when it does feed through. What follows in the usual sequence is the 20-year auction result as the first test of real-money demand at these yields, then any shift in how officials frame the balance between soft activity and sticky expectations. Days without a catalyst that nonetheless steepen have historically been more informative about positioning and supply absorption than about macro signal.