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TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLE 4+ TICKS LOWER AT 105-25+

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US Overall Net Capital Flows (Jul) 83.70B (Prev. 135.50B)

US FX WRAP: Dollar gains post hawkish FOMC

TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLE 4+ TICKS LOWER AT 105-25+

Banks line up USD 22bln chip loan tied to Blackstone (BX) and Alphabet (GOOGL)

Trump officials considering AI executive meeting on the sidelines of Xi visit next week, reports CNN

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Yield curve flattens after hawkish FOMC. At settlement, 2-year +5.2bps at 4.723%, 3-year +3.5bps at 4.807%, 5-year +2.5bps at 4.862%, 7-year +1.5bps at 4.933%, 10-year +0.6bps at 5.012%, 20-year -1.4bps at 5.395%, 30-year -1.4bps at 5.355%.

THE DAY: T-notes had gradually risen ahead of the FOMC, but Treasuries tumbled across the curve in the immediate aftermath of the Fed rate decision. The Fed hiked rates by 25bps as expected, with the decision unanimous, while reiterating its commitment to price stability within the statement. Warsh did not submit forecasts, but the vast majority of officials expect at least one further rate hike by year-end, with the median seeing rates then remaining on hold throughout 2027.

The press conference delivered a familiar message from Chair Warsh, emphasising price stability against the backdrop of employment at or near full employment and a strong US economy. He continued to avoid forward guidance but stressed the Fed's determination to return inflation to target.

Yields rose across the curve in the immediate wake of the Fed statement and press conference, with the 10-year yield reclaiming 5.00%. The curve ultimately bear flattened on the day, with the front end leading the sell-off while the long end finished modestly firmer. Money market pricing also shifted hawkishly, with October now seen as roughly a coin toss (vs. c. 8bps of tightening priced before the meeting, adjusting for Wednesday's hike), while around 32bps of additional tightening is priced by December, vs. 24.5bps pre-Fed on the same adjusted basis.

SUPPLY

Notes

  • US to sell USD 19bln of 10yr TIPS on Sept. 17th; to settle on Sept. 30th

Bills

  • US sold 17-wk bills at a high rate of 4.030%, B/C 2.72x
  • US to sell USD 72bln of 17-wk bills on September 16th; to sell USD 90bln of 4-wk bills and USD 85bln of 8-wk bills on Sept. 17th; all to settle on Sept. 22nd

STIRS / OPERATIONS

  • Fed Hike Pricing via CME FedWatch: Oct 13bps (prev. 7.8bps pre Fe), Dec 31.7bps (prev. 24.5bps pre Fed); Prior adjusted for today's hike.
  • EFFR at 3.63% (prev. 3.63%), volumes at USD 100bln (prev. USD 91bln) on September 15th
  • SOFR at 3.64% (prev. 3.62%), volumes at USD 2.952tln (prev. USD 2.861tln) on September 15th
  • NY Fed RRP op demand at 5.38bln (prev. 0.70bln) across 4 counterparties (prev. 2) on September 16th
Context

A unanimous 25bp hike paired with a dot plot showing the majority expecting at least one more increase by year-end is the classic recipe for a bear flattener: the front end reprices the policy path directly while the long end, anchored by term premium and the credibility of the inflation commitment, sells off less or firms. The pattern here is textbook, with 2s leading the move and the 30-year finishing modestly higher in yield terms, a configuration that has historically accompanied hawkish surprises delivered against a solid growth backdrop rather than a growth scare. Two features of the framing are familiar from prior hiking cycles: a chair who withholds forward guidance while stressing determination on inflation, and a statement reiterating price stability, both of which transfer the burden of repricing onto incoming data. That raises the sensitivity of each subsequent inflation and labour print, with money market pricing for the next meeting shifting to roughly a coin toss, the usual mechanism by which a hawkish meeting propagates. The bear flattening itself carries a distinction worth drawing: when the front end leads on hawkish policy it typically signals a credible tightening, whereas a bear steepener would have signalled doubts about the inflation commitment. The immediate follow-ons are how other officials frame the dots in coming days, whether front-end pricing continues to converge toward the median, and auction demand at the upcoming TIPS supply as a read on real-rate appetite.

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