TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 7+ TICKS LOWER AT 108-08+
Treasury curve bear flattens as focus turns to Jackson Hole. At settlement, 2-year +4.4bps at 4.234%, 3-year +3.6bps at 4.310%, 5-year +3.2bps at 4.426%, 7-year +3.1bps at 4.568%, 10-year +3.2bps at 4.740%, 20-year +2.6bps at 5.265%, 30-year +2.7bps at 5.277%.
THE DAY: Yields rose across the curve on Friday in quiet trade. The curve bear flattened, with front-end yields leading the move higher, while crude prices settled marginally firmer.
The Treasury's actions earlier this week remain at the front of participants' minds. Traders may be reluctant to push long-end Treasury futures materially lower given the prospect of further Treasury action; Bessent said on Thursday that the Treasury has a wide toolkit, while also stressing that buybacks could exceed the USD 4bln per-operation maximum announced earlier this week. It is also worth noting that the increased liquidity-support buybacks are focused on the 10-30-year sector, potentially providing greater support to the long end relative to the front end and contributing to Friday's flattening.
Data saw the S&P Global Flash PMI report, where Manufacturing missed expectations, but the Services beat was enough to offset the weakness, with the Composite rising to 56.0 from 54.5. The report noted that the data point to a Q3 annualised growth rate approaching 3.0%, vs the roughly 1.5% pace signalled in Q2.
Geopolitical news was mixed, with Iranian President Pezeshkian saying "the war must end at some point", noting it would be better to end the conflict now from a position of strength. However, the Commander of the Iranian Navy struck a more confrontational tone, saying Iran will soon teach the enemy a "historical lesson" at sea.
Next week, the US PCE report will be the data highlight, while on Monday Treasury Secretary Bessent is expected to announce large-scale sanctions on Iran. However, for Treasury traders, Fed Chair Warsh's remarks at Jackson Hole will be key, as will the annual BLS Benchmark revisions (primers available here)
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 to sell USD 92bln of 13-wk bills and USD 79bln of 26-wk bills on August 24th, 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 9.6bps (prev. 9.0bps), Dec 25.0bps (prev. 23.0bps)
- EFFR at 3.63% (prev. 3.63%), volumes at USD 102bln (prev. USD 95bln) on August 20th
- SOFR at 3.63% (prev. 3.62%), volumes at USD 2.922tln (prev. USD 2.923tln) on August 20th
- NY Fed RRP op demand at 0.20bln (prev. 0.23bln) across 1 counterparties (prev. 1) on August 21st
A bear flattening of this shape, front end leading with the long end relatively anchored, is the classic signature of an event-risk session ahead of a major central bank speech, and Jackson Hole chairs' remarks have a long record of repricing the front of the curve when they shift the perceived reaction function. The distinguishing feature here is the Treasury buyback overhang: when official buyback operations are concentrated in the 10-30 year sector and signalled as scalable, they act as a soft floor under long-end futures and mechanically bias the curve flatter on risk-off-for-durations days, a dynamic that has appeared in past episodes where issuance or buyback policy targeted a specific sector rather than the whole curve. The data input was mixed, soft manufacturing against firm services, and composite prints of that kind have historically mattered less for rates than the inflation and labour releases that follow. The near-term calendar is dense in the ways that matter: coupon supply in the belly, the PCE release, and the Fed chair's remarks, with benchmark revisions an additional source of rate volatility given their capacity to rewrite the labour narrative. Sanctions headlines on Iran bear watching through the crude channel, since oil firmness on geopolitical escalation has tended to steepen inflation breakevens even when nominals are pinned by event risk.