TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 12 TICKS LOWER AT 109-18

T-notes bear flattened on Wednesday following a hawkish FOMC decision and a hawkish first press conference from Chair Warsh. At settlement, 2-year +16.2bps at 4.216%, 3-year +14.5bps at 4.239%, 5-year +11.8bps at 4.280%, 7-year +9.1bps at 4.381%, 10-year +5.6bps at 4.495%, 20-year +0.7bps at 4.950%, 30-year -1.4bps at 4.927%.

THE DAY: Treasuries sold off sharply on Wednesday, with losses concentrated in the front-end following a hawkish FOMC decision under Chair Warsh. The curve bear flattened as markets repriced the policy outlook, with 2-year yields rising more than 16bps while the long end was little changed.

The Fed left rates unchanged as widely expected, but delivered a significant hawkish shift in communication. The Committee unanimously removed forward guidance from the statement, placed greater emphasis on inflation and its commitment to price stability, and upgraded its assessment of the labour market. The updated SEP projections were also hawkish, with the median path now implying one rate hike this year versus one rate cut previously. Inflation forecasts were revised higher, while unemployment and growth projections were revised lower for 2026.

Chair Warsh confirmed he was the participant who did not submit SEP forecasts, arguing that dot plots are not particularly useful for conducting monetary policy. However, he stressed that policymakers do not feel bound by their projections. Elsewhere in the press conference, Warsh characterised policy restrictiveness as "uneven", suggesting housing is the primary area where higher rates are materially weighing on activity, but rates are not restrictive to financial markets. He also placed considerable emphasis on returning inflation to target and showed little concern about current labour market conditions.

Given Warsh was appointed by President Trump, who has repeatedly favoured lower interest rates, the press conference reinforced the Fed's independence and suggested inflation remains the dominant policy concern. Markets responded by increasing expectations for further tightening, with money markets once again fully pricing a 25bp rate hike by year-end.

Elsewhere, both US and Iranian media released further details of the memorandum of understanding ahead of a formal signing expected within the next 48 hours. Oil prices ultimately traded little changed, paring earlier gains as the stronger Dollar and hawkish Fed offset support from ongoing geopolitical developments.

There was little reaction to the stronger-than-expected retail sales report, with the FOMC decision and Chair Warsh's first press conference dominating market attention throughout the session.

SUPPLY

Notes

US Treasury to sell USD 24bln of 5-year TIPS on June 18th, to settle June 30th

Bills

US sells 17-wk bills at high-rate 3.670%, B/C 2.87x
US to sell USD 75bln of 8-wk bills and USD 70bln of 4-wk bills on June 18th; all to settle on June 23rd

STIRS/OPERATIONS

Fed Pricing: 26bps (prev. Dec 18.7bps)
EFFR at 3.63% (prev. 3.63%), volumes at USD 106bln (prev. USD 102bln) on June 16th
SOFR at 3.63% (prev. 3.69%), volumes at USD 3.137tln (prev. USD 3.147tln) on June 16th
NY Fed RRP op demand at 6.83bln (prev. 10.72bln) across 16 counterparties (prev. 5) on June 17th