TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 5 TICKS LOWER AT 109-04+

Treasuries were little changed on Thursday despite encouraging US economic data and hawkish Fed commentary, with lower oil prices helping keep inflation expectations contained. At settlement, 2-year +2.1bps at 4.158%, 3-year +2.1bps at 4.205%, 5-year +1.6bps at 4.280%, 7-year +1.7bps at 4.414%, 10-year +1.8bps at 4.567%, 20-year +1.1bps at 5.095%, 30-year +1.2bps at 5.096%.

THE DAY: Oil prices ultimately settled lower despite a volatile session. Crude initially rallied after reports that Iran had instructed Yemen's Houthis to close the Bab el-Mandeb Strait if the US were to strike Iran's power infrastructure. Separately, the Houthi leader warned that all Saudi energy facilities would become targets should Saudi Arabia launch all-out aggression against Yemen. While both headlines were conditional rather than signalling imminent action, they highlighted the risk of a broader regional escalation. Reports of explosions in Dubai were later denied by the Dubai Media Office, while Qatar rejected Israeli media reports that it had agreed to participate in military action against Iran. Those denials, alongside continued comments from the White House that Iran wants to make a deal, helped crude reverse earlier gains.

US economic data painted a constructive picture of the economy. Initial jobless claims fell below expectations, continuing to point to a resilient labour market, while retail sales broadly matched forecasts, reinforcing the view of a healthy consumer. ING said the data are consistent with around 2% annualised Q2 GDP growth. Elsewhere, the Philadelphia Fed Manufacturing Index surged to 41.4 from 10.3, well above the 12.0 consensus, driven by a sharp rise in new orders, improving employment and broadly stable price pressures.

Fed speakers maintained a hawkish tone. Dallas Fed President Logan (2026 voter) became the first Fed official to explicitly call for "modestly higher" interest rates, arguing it is time to finish the job of restoring price stability and that some policy restriction remains necessary to return inflation to target. Kansas City Fed President Schmid (2028 voter) also warned that inflation remains persistent across a broad range of goods and services, although he stopped short of explicitly calling for further rate hikes.

Despite the stronger data and hawkish Fed rhetoric, Treasury yields finished little changed, rising only 1-2bps across the curve, as the reversal lower in crude prices helped offset upside pressure on inflation expectations.

• US to sell USD 13bln of 20yr bonds on July 22nd, to settle on July 24th; to sell USD 21bln of 10-year tips on July 23rd; to settle on July 31st

• US sold 4-wk bills at high rate 3.660%, B/C 2.57x; sold 8-wk bills at high-rate 3.650%, B/C 2.84x
• US to sell USD 92bln of 13-week bills and USD 79bln of 26-week bills on July 20th, to settle on July 23rd.
• US to sell USD 95bln of 6-week bills on July 21nd, to settle on July 23rd.

• Fed Pricing: Dec 23.7bps (prev. 25.1bps)
• EFFR at 3.63% (prev. 3.63%), volumes at USD 109bln (prev. USD 111bln) on July 15th
• SOFR at 3.64% (prev. 3.63%), volumes at USD 3.104tln (prev. USD 3.092tln) on July 15th
• NY Fed RRP op demand at 0.12bln (prev. 0.15bln) across 1 counterparties (prev. 2) on July 16th
• Treasury Buyback (20-30 year liquidity support, max USD 2bln): Accepted USD 2bln of 30.5bln offers, Offer to cover 15.27x