TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLE 2+ TICKS LOWER AT 105-14+

T-notes steepen as Warsh avoids forward guidance, while AI weakness and higher oil prices drive choppy trade. At settlement, 2-year -1.1bps at 4.746%, 3-year -0.2bps at 4.839%, 5-year +1.3bps at 4.908%, 7-year +2.2bps at 5.001%, 10-year +2.3bps at 5.102%, 20-year +2.3bps at 5.492%, 30-year +2.1bps at 5.441%.

THE DAY: The Treasury yield curve steepened on Friday, with front-end yields edging lower while longer-dated yields rose amid a choppy session driven by several competing factors. The steepening was potentially supported by Fed Chair Warsh's overnight remarks, in which he maintained his preference against providing explicit forward guidance, prompting a dovish response in money market pricing. The implied probability of an October rate hike fell to around 17%, compared with approximately 50% immediately following Wednesday's CPI report. Markets appeared to interpret Warsh's lack of pushback against current pricing and recent Fed commentary as reinforcing expectations for an October pause, although he offered no explicit signal regarding the upcoming decision.

Offsetting the dovish shift in rate expectations was a rally in crude prices, with Brent briefly reaching USD 110/bbl amid ongoing geopolitical tensions. Reports that Saudi Arabia's East-West pipeline had once again been targeted raised further concerns over global oil supply.

T-notes found some support during the late US morning following the equity opening bell, seemingly benefiting from haven demand as the technology and AI stock rout continued. However, as crude prices rallied, T-note futures retreated from their session highs, ultimately settling towards the lower end of the day's range.

Elsewhere, US Import and Export Prices were hotter than expected, adding to a series of elevated inflation readings this week. Industrial Production also exceeded forecasts, with headline output growth outpacing Manufacturing Production.  Meanwhile, the Treasury's Primary Dealer Survey asked, "What future changes to auction sizes should Treasury consider, given expected borrowing needs and investor demand?" and "What, if any, additional changes should Treasury consider to enhance the effectiveness of the buyback program?" There had been some speculation that Treasury could seek feedback on eliminating the 20-year bond altogether, although the survey did not explicitly address the future of the 20-year tenor or potential changes to long-end issuance, beyond its broader questions on auction sizes and buybacks.

• US Treasury to sell USD 13bln of 20-year bonds on Oct 21st, to settle Oct 22nd; To sell USD 26bln of 5-year TIPS on Oct 22nd, to settle October 30th

• US to sell USD 95bln of 13-week bills and USD 82bln of 26-week bills on Oct 19th.
• US to sell USD 95bln of 6-week bills on Oct 20th

• Fed Hike Pricing via CME FedWatch: Oct 4.3bps (prev. 7.3bps), Dec 26bps (prev. 28.7bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 118bln (prev. USD 111bln) on October 15th
• SOFR at 3.89% (prev. 3.88%), volumes at USD 3.025tln (prev. USD 2.974tln) on October 15th
• NY Fed RRP op demand at 1.20bln (prev. 0.20bln) across 4 counterparties (prev. 2) on October 15th