TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 6 TICKS HIGHER AT 108-14+
T-notes bull flatten on buyback sources. At settlement, 2-year -0.6bps at 4.234%, 3-year -1.3bps at 4.300%, 5-year -2.5bps at 4.403%, 7-year -3.3bps at 4.535%, 10-year -4.0bps at 4.696%, 20-year -5.1bps at 5.214%, 30-year -4.9bps at 5.227%.
THE DAY: Treasury yields fell across the curve on Monday, with the long end outperforming and resulting in a bull flattening of the curve. The front end was relatively anchored in comparison, while yields declined by as much as 5bps further out the curve.
Focus remains firmly on the long end following last week's Treasury buyback announcement. The latest source reports suggested that the Treasury could use funds from the Treasury General Account, which currently stands around USD 1tln, to finance additional buybacks. Meanwhile, FBN cited Wall Street executives familiar with Bessent's thinking as saying he will do whatever it takes to "put the fear of God" into bond vigilantes who short the long end in an attempt to drive the 10-year yield towards 5%. The report suggested potential measures could include further buybacks, greater short-term issuance and even changes to long-dated issuance, including the possible elimination of the 20-year bond.
Bessent also confirmed an escalation of the administration's campaign against Iran, announcing Operation Economic Outcast, including secondary sanctions targeting key Iranian sectors such as shipping, aviation, gold, technology and digital assets. Bessent subsequently warned against conducting business with Iran, particularly those turning a blind eye to seaborne and overland oil transfers designed to circumvent sanctions.
Aside from fundamentals, there was also a chunky Treasury futures curve block worth highlighting. At 09:56EDT/14:56BST, 52.6k September 2026 2-Year T-Note futures traded at 102-310, while at the same time 22.7k September Ultra 10-Year T-Note futures (TNU6) were blocked at 110-090.
Later this week, the US PCE report will be the data highlight, while Fed Chair Warsh's remarks at Jackson Hole and the annual BLS benchmark revisions will also be closely watched. There will additionally be 2-, 5- and 7-year Treasury auctions this week.
SUPPLY
Notes/Bonds
- US to sell USD 69bln of 2-year notes on August 25th, USD 70bln of 5-yr notes on Aug. 26th, and USD 44bln of 7-yr notes on Aug. 27th; all to settle on Aug. 31st
Bills
US sold USD 93bln of 3-mnth bills at high-rate 3.715%, B/C 3.08x; sold USD 79bln of 6-mnth bills at high-rate 3.790%, B/C 3.05x * US to sell USD 95bln of 6-wk bills on Aug. 25th and USD 28bln of reopened 2yr FRN on Aug. 26th; all to settle on Aug. 27th.
STIRS / OPERATIONS
- Fed Hike Pricing via CME FedWatch: Sept 10.5bps (prev. 10.0bps), Dec 27.0bps (prev. 25.4bps)
- EFFR at 3.63% (prev. 3.63%), volumes at USD 96bln (prev. USD 102bln) on August 21st
- SOFR at 3.65% (prev. 3.63%), volumes at USD 2.952tln (prev. USD 2.922tln) on August 21st
- NY Fed RRP op demand at 0.38bln (prev. 0.20bln) across 2 counterparties (prev. 1) on August 24th
Sessions in which Treasury buyback chatter drives a bull flattening follow a familiar sequence: the long end rallies on the prospect of reduced duration supply while the front end stays anchored by the policy path, and the curve flattens as a result. Buyback programmes of this kind have historically been a debt management tool rather than a yield cap, and the distinction worth drawing is between the mechanical effect of fewer long bonds outstanding and the signalling effect of a Treasury secretary openly targeting long end shorts, since the former is durable and the latter fades if issuance projections say otherwise. Funding buybacks out of the TGA rather than new bill issuance would itself be curve supportive, as it avoids adding short end supply, whereas talk of trimming or eliminating a specific tenor like the 20-year has precedent in past shifts of the coupon issuance mix and typically richens the affected sector outright. The near term tells are concrete: the week's 2-, 5- and 7-year auctions test demand at the anchored part of the curve, while the PCE print and the Fed chair's remarks determine whether front end pricing, currently implying a modest easing path, validates or pushes back against the flattening. Sanctions escalation on Iran adds a secondary channel via crude, where any sustained bid in energy complicates the disinflation backdrop that long end strength is leaning on.