TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 8+ TICKS LOWER AT 108-12

Yields rise across the curve as oil prices climb on geopolitical uncertainty. At settlement, 2-year +4.0bps at 4.239%, 3-year +4.6bps at 4.309%, 5-year +5.1bps at 4.408%, 7-year +5.2bps at 4.549%, 10-year +5.2bps at 4.701%, 20-year +4.6bps at 5.255%, 30-year +4.4bps at 5.246%.

THE DAY: Treasury yields rose across the curve on Monday, reversing some of Friday's sharp decline following the weak July NFP report, with the move largely driven by higher crude prices. The situation surrounding the Strait of Hormuz remains fluid, with repeated suggestions that progress is being made but little concrete evidence of a breakthrough. Meanwhile, US President Trump said the US is only "semi-negotiating" with Iran, while Iran's Supreme National Security Council issued six demands to the US for reopening Hormuz, including full compensation, sanctions relief, the release of frozen assets, an end to the blockade and the withdrawal of US forces from the region. Elsewhere in the Gulf, Saudi Arabia extinguished a fire at its Jazan facility early on Sunday, while Yemen's Houthis claimed responsibility for the attack.

Higher energy prices amid the continued uncertainty in the Middle East lifted inflation expectations and helped push Treasury yields higher. Markets now see a September rate hike as roughly a coin toss, with the Fed facing competing risks from renewed energy-driven inflation pressures and signs of a weakening labour market following Friday's jobs report. Wednesday's CPI report will therefore be particularly important in shaping expectations for the September FOMC.

Meanwhile, Fed's Hammack (2026 voter, hawkish dissenter) said in late trade that the current policy rate is not meaningfully restricting the economy and that the Fed will probably require some number of additional rate hikes. However, she declined to prejudge either the number of moves required or the eventual destination for rates.

Attention this week turns to Treasury supply, with the 3-year auction on Tuesday, 10-year on Wednesday and 30-year on Thursday, although the primary macro focus will be Wednesday's CPI report.

• US to sell USD 58bln of 3yr notes on August 11th, USD 42bln of 10yr notes on 12th August, and USD 25bln of 30yr on August 13th; all settling on August 17th

• US sold 3mth bills at a high rate of 3.735%, B/C 2.88x; sold 6mth bills at a high rate of 3.830%, B/C 2.85x
• US to sell USD 95bln of 6-week bills on August 11th; all to settle on August 13th

• Fed Hike Pricing via CME Fed Watch: Sept 12.9bps (prev. 11bps), Dec 31.6bps (prev 28.6bps).
• EFFR at 3.63% (prev. 3.63%), volumes at USD 117bln (prev. USD 113bln) on August 7th
• SOFR at 3.62% (prev. 3.65%), volumes at USD 2.977tln (prev. USD 3.055tln) on August 7th
• NY Fed RRP op demand at 0.97bln (prev. 1.45bln) across 2 counterparties (prev. 2) on August 10th