Published 28 Aug 2026, 19:40Subscribers had it 20 minutes earlier, at 19:20

TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 15 TICKS LOWER AT 108-03+

T-notes pressured by hawkish Warsh remarks that have sparked September rate hike bets. At settlement. 2-year +11.8bps at 4.352%, 3-year +10.3bps at 4.403%, 7-year +7.1bps at 4.595%, 10-year +4.8bps at 4.724%, 20-year +2.0bps at 5.209%, 30-year +1.5bps at 5.210%.

THE DAY: Treasuries bear flattened as a hawkish Fed Chair Warsh speech sent the short-end rallying, leaving money markets returning to pricing in a coin flip of a Fed rate hike at the September meeting. Warsh gave a more detailed view on the economy, which restored some confidence in the long-end, evidenced by the narrowing of the 2s30s (long-end was initially bid, but later reversed). Specifically, Warsh highlighted the inflation mandate as more concerning than that of the labour market, noting that summer inflationary readings were better-than-expected; the underlying trends have not meaningfully improved. Additionally, Warsh noted the Fed still has work to do unless underlying inflation is clearly moving towards the 2% goal at sufficient speed. However, the "work" needed comes with ambiguity as Warsh didn't specify what that would mean, holding at current rates for longer or resuming tightening; perhaps, data from now until the next meeting will be the deciding factor.

At the same time as Warsh's speech, the annual prelim NFP revisions saw a negative reading of 79k. Moreover, UoM final revisions for August topped expectations, with the 1yr inflation expectations now at 4.0% (prev. 4.2%) and the 5yr remaining at 3.3%. The impact of the data on price action was muted given Warsh's overpowering remarks.

Elsewhere, other Fed speakers included 2026 voter Hammack continuing to call for tightening to address high inflation; meanwhile, 2027 voter Goolsbee said he agreed with Warsh's details of the economy.

STIRS / OPERATIONS

Fed Hike Pricing via CME FedWatch: Sept 14.4bps (prev. 8.5bps), Dec 37.8bps (prev. 27bps).
EFFR at 3.63% (prev. 3.63%), volumes at USD 111bln (prev. USD 112bln) on August 27th
SOFR at 3.64% (prev. 3.64%), volumes at USD 2.836tln (prev. USD 2.859tln) on August 27th
NY Fed RRP op demand at 0.175bln (prev. 0.456bln) across 1 counterparties (prev. 8) on August 28th

Subscribers had this at 19:20. Published here 19:40.

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Context

A hawkish speech from the sitting Fed Chair moving front-end yields double digits while the long end barely follows is the classic bear-flattening signature of a repriced policy path rather than a term-premium move: the two-year does the work because it sits closest to the rate in question. The detail that a hike, not merely a longer hold, re-entered money-market pricing marks a regime distinction; in past episodes where markets shifted from 'higher for longer' to pricing active tightening, the two-year has tended to lead and the curve to invert further until the data either validated or killed the hike case. The speaker's prior form matters here: remarks stressing the inflation mandate over the labour side, and declining to specify whether 'more work' means holding or tightening, leave the ambiguity deliberately open, which historically raises the beta of every subsequent inflation print. Note also that a negative payrolls revision and softer near-term inflation expectations in the same window were overrun by the speech, a pattern typical when a Chair's framing trumps second-tier data. The alignment of other current and future voters with the remarks is the tell for whether this reflects the committee's centre of gravity or one voice; past stop-start tightening cycles show follow-through depends on that breadth. Watch points are the next inflation readings and whether hike pricing at the September meeting firms toward or fades from a coin flip.

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