TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLE 12+ TICKS HIGHER AT 106-06

Yield curve steepens as front-end yields decline following US data and the ECB rate decision. At settlement, 2-year -3.1bps at 4.654%, 3-year -3.2bps at 4.728%, 5-year -2.1bps at 4.800%, 7-year -2.2bps at 4.880%, 10-year -1.9bps at 4.984%, 20-year -1.0bps at 5.362%, 30-year -0.7bps at 5.324%.

THE DAY: The yield curve was lower on Thursday, with a slight steepening bias, continuing the move seen post-FOMC on Wednesday. Front-end yields declined by c. 3bps.

The economic data saw September PCE largely in line with expectations, with core PCE unchanged at 0.3% M/M, while headline PCE rose 0.5% M/M from 0.3% previously. Personal income and spending both fell short of expectations, raising some concerns about the consumer in what has otherwise been a healthy economy. Q3 GDP was strong at 3.4% (annualised), while the quarterly inflation metrics were welcomed, with core PCE prices rising 2.5% (prev. 3.3%) and headline PCE prices rising 2.1% (prev. 5.0%). Jobless claims remained below 200k, pointing to limited layoffs and a relatively stable labour market amid the broader low-hire, low-fire environment.

The data helped support Treasuries across the curve, as PCE remained broadly in line with forecasts, easing some inflation concerns following the hotter September CPI, PPI and import/export price reports earlier this month.

Elsewhere, the ECB rate decision also provided some support, as it held rates as expected and acknowledged that financing conditions have tightened, which is likely to weigh on inflation and growth. Sources later reported that a December hike is likely before a pause.

The USD 44bln 7-year note auction had little impact on price action but was solid overall, stopping on the screws with a low Dealer takedown and strong Direct participation. Next week sees the quarterly refunding announcement, where focus will remain on any adjustments to issuance guidance, alongside commentary on Treasury buyback operations.

• US sold USD 44bln of 7-year notes; stopped on the screws.
• US sold 4-week bills at a high rate of 3.910%, B/C 3.10x; sold 8-week bills at a high rate of 4.020%, B/C 2.63x.
• US to sell USD 95bln of 13-week bills and USD 82bln of 26-week bills on November 2nd, and USD 100bln of 6-week bills on November 3rd; all to settle November 5th.

• Fed Hike Pricing via CME FedWatch: Dec 19.9bps (prev. 21.5bps), Mar 43.8bps (prev. 47.7bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 116bln (prev. USD 115bln) on October 28th
• SOFR at 3.94% (prev. 3.95%), volumes at USD 3.074tln (prev. USD 3.147tln) on October 28th
• NY Fed RRP op demand at USD 0.35bln (prev. USD 0.18bln) across 4 counterparties (prev. 2) on October 29th
• NY Fed T-Bill Purchases (4-12 month): Accepts USD 1.83bln of USD 25.05bln offered; Offer-to-cover 13.71x