TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 7+ TICKS LOWER AT 108-17+

Treasury steepen again in Fed fallout. 2-year -3.7bps at 4.229%, 3-year -4.6bps at 4.282%, 5-year -3.7bps at 4.373%, 7-year -3.3bps at 4.514%, 10-year -2.4bps at 4.663%, 20-year -1.8bps at 5.214%, 30-year -0.5bps at 5.207%.

DAY: The curve once again steepened, a consequence of the short-end yields continuing to decline as the market dials back 2026 rate hike expectations. Meanwhile, the long-end was little changed after Wednesday's selloff in response to a lack of forward guidance from Fed Chair Warsh.

Today's developments – US data and geopolitics – had little bearing on price action, which was ultimately driven by the continued fallout of Wednesday's Fed meeting. 

Data saw PCE largely match expectations in June, except the Core M/M reading, which printed slightly soft at 0.1% M/M (exp. 0.2%); personal income fell short of expectations, while spending matched forecasts. Meanwhile, advanced GDP Q2 printed 1.5% (vs. exp. and prev. of 2.1%), Core PCE Prices in Q2 came in at 3.4% (exp. 3.5%, prev. 4.4%), initial claims saw a modest rebound, and continued claims fell.

The slight drop in oil prices also gave comfort to the short end, with the US 2yr yield now down to around 4.23% from a WTD 4.339% high. Diplomatic efforts offset concerns today over the latest round of strikes. Pakistani Foreign Ministry Spokesperson said discussions between Tehran and Washington are ongoing regarding the situation in the Strait of Hormuz and de-escalation, Al Jazeera reported.

• US sold 4-week bills at a high rate of 3.630%, B/C 2.80x
• US sold 8-week bills at a high rate of 3.675%, B/C 2.74x
• US to sell USD 92bln 13-Week Bills on 3rd August, USD 79bln 26-Week Bills on 3rd August, USD 52bln 52-Week Bills on 4th August, USD 95bln 6-Week Bills on 4th August; all to settle on 6th August

• Fed Pricing: 20.1bps (prev. Dec 20.6bps)
• EFFR at 3.63% (prev. 3.63%), volumes at USD 101bln (prev. USD 106bln) on July 29th
• SOFR at 3.65% (prev. 3.65%), volumes at USD 3.032tln (prev. USD 2.977tln) on July 29th
• NY Fed RRP op demand at 1.076bln (prev. 2.576bln) across 3 counterparties (prev. 5) on July 30th