TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLE 12 TICKS LOWER AT 104-15+

Yields rise across curve amid choppy geopolitics ahead of key US data this week. At settlement, 2-year +7.5bps at 4.935%, 3-year +8.0bps at 5.019%, 5-year +8.8bps at 5.081%, 7-year +8.5bps at 5.160%, 10-year +8.4bps at 5.251%, 20-year +7.4bps at 5.623%, 30-year +7.9bps at 5.569%.

THE DAY: Treasuries sold off across the curve on Monday, with yields rising around 7-9bps across maturities.

The rise in yields came amid choppy oil trade on conflicting geopolitical reports. Initially, oil prices rallied after Trump rejected a deal with Iran over the weekend, although he said talks would continue. Yields hit their peaks in the late US morning before paring from highs.

The move in yields off their peaks tracked crude lower following reports that US President Trump is prepared to ease sanctions on Iran and release frozen Iranian assets in exchange for progress on the nuclear issue. Yields saw further downside after reports that Iran had agreed to halt uranium enrichment in exchange for an easing of US sanctions; however, the move stalled as other reports suggested the chances of a deal remain extremely slim. Yields ultimately settled higher across the curve, but off session peaks.

Elsewhere, there was a lack of notable US data, with attention turning to PCE, ISM, Mfg., and NFP later this week. Fed Governor Cook warned of continued inflation pressures in the coming months, but noted that the labour market is well positioned to handle an increase in rates. Money markets currently price around 17bps of tightening for October, implying a 68% probability of another 25bp hike, while December prices around 38bps, fully pricing one additional hike and implying roughly a 52% probability of a second. This week's data will therefore be key in shaping those expectations further.

Supply

Bills

• US sold 3-mnth bills at high-rate 4.110%, B/C 2.99x; sells 6-mnth bills at high-rate 4.285%, B/C 2.64x
• US to sell USD 85bln of 6-week bills and USD 54bln of 52-week bills on September 29th; all to settle on October 1st.

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 17bps (prev. 16.6bps), Dec 37.7bps (prev. 36.5bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 112bln (prev. USD 105bln) on September 25th
• SOFR at 3.90% (prev. 3.88%), volumes at USD 2.914tln (prev. USD 2.99tln) on September 25th
• NY Fed RRP op demand at 0.85bln (prev. 0.58bln) across 3 counterparties (prev. 3) on September 28th