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.

• 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