TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 2+ TICKS LOWER AT 108-18+

T-notes little changed ahead of Warsh. At settlement, 2-year +2.1bps at 4.230%, 3-year +2.6bps at 4.295%, 5-year +3.4bps at 4.394%, 7-year +3.0bps at 4.518%, 10-year +2.1bps at 4.670%, 20-year +1.9bps at 5.184%, 30-year +1.7bps at 5.189%.

THE DAY: Treasury yields were little changed across the curve on Thursday, rising between 0-3bps. Oil prices extended Wednesday's gains, although there was little follow-through into Treasuries, with participants likely turning their attention to Fed Chair Warsh's remarks on Friday. Yields saw some upside tracking oil higher after the WSJ reported that the US has no intention on returning to the MoU initially signed with Iran in June.

Economic data saw the advance goods trade deficit widen by more than expected, with capital goods imports surging amid strong AI-related demand, while industrial supplies exports declined on weaker oil exports. Meanwhile, jobless claims remained low, consistent with a steady, low-hire, low-fire labour market.

With Jackson Hole underway, focus now turns to Fed Chair Warsh on Friday. In the meantime, Schmid said he probably would have supported a hike in July, noting that inflation remains stubborn and sticky and that it is unclear how restrictive Fed policy currently is. Hammack reiterated that now is the time to act and said she does not view current policy as restrictive for the economy, although she noted that she enters every meeting with an open mind. Collins said she believes policy is restrictive enough and will likely lead to disinflation, but if disinflation is not seen, rate increases would be warranted.

The 7-year auction was broadly in line with recent averages, stopping on the screws, compared with the prior and six-auction average 0.2bp tails. Direct participation jumped notably, although this was offset by a decline in indirect demand, leaving dealers with a roughly average takedown. Overall, the higher outright yield on offer likely provided some support, although the auction was ultimately fairly average - whereas the 2- and 5-year auctions this week saw lower outright yields vs July but remained strong. 

Note, the last two sessions have also seen liquidity briefly evaporate in the US bond market, which traders attributed to a gateway failure at the CME. There was no notable impact on price action, although the sudden bouts of thin liquidity left traders scratching their heads.

• US sold USD 44bln of 7yr notes; On the screws

• US sold 4-wk bills at high-rate 3.650%, B/X 2.73x; sold 8-wk bills at high-rate 3.670%, B/C 2.77x
• 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 8.5bps (prev. 10.0bps), Dec 27bps (prev. 26.1bps).
• EFFR at 3.63% (prev. 3.63%), volumes at USD 112bln (prev. USD 109bln) on August 26th
• SOFR at 3.64% (prev. 3.66%), volumes at USD 2.859tln (prev. USD 2.916tln) on August 26th
• NY Fed RRP op demand at 0.46bln (prev. 0.70bln) across 8 counterparties (prev. 4) on August 27th