TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLE 7 TICKS HIGHER AT 106-01+

Yields move lower as oil prices tumble. At settlement, 2-year -0.3bps at 4.753%, 3-year -2.2bps at 4.818%, 5-year -3.0bps at 4.833%, 7-year -3.6bps at 4.893%, 10-year -4.1bps at 4.959%, 20-year -4.2bps at 5.335%, 30-year -3.3bps at 5.294%.

THE DAY: Treasury yields were lower across the curve on Monday, with the curve bull flattening as the belly and long end led the move, while the 2yr was little changed.

The move lower in yields appeared to track the sharp decline in oil prices, with participants awaiting potential diplomatic developments between the US and Iran after US President Trump signalled an openness to meeting the Iranian President at the UN General Assembly this week. Crude ultimately settled lower by over USD 4/bbl.

Aside from geopolitics at the UNGA, attention will be on any US/China developments, with the Trump/Xi summit taking place this week. Treasury Secretary Bessent said the US is looking to bring in more everyday items from China, while energy products on the US side and medical devices on the Chinese side could be suitable for tariff reductions.

Fed speak leaned hawkish. Both Goolsbee (2027 voter) and Musalem (2028 voter) warned about the potential for demand-driven inflation alongside ongoing supply-driven price pressures. Musalem said that without further policy restraint, inflation is more likely to remain substantially above the 2% target 18 months from now. Meanwhile, Goolsbee warned that if inflation is predominantly demand-driven, the rate response will need to be more aggressive and more front-loaded.

With no tier-one US data this week, Treasury traders will be eyeing the 2-, 5- and 7-year auctions alongside the aforementioned macro developments and a plethora of Fed speak.

Supply

• US to sell USD 69bln of 2yr notes on September 22nd, USD 70bln of 5yr notes on September 23rd, and USD 44bln of 7yr notes on September 24th; all to settle September 30th.
• US to sell USD 28bln of 2yr FRNs on September 23rd, to settle September 25th.

Bills

• US sold 3-month bills at a high rate of 4.015%, B/C 2.77x; sold 6-month bills at a high rate of 4.155%, B/C 2.62x 

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 13.9bps (prev. 13.9bps), Dec 33bps (prev. 33bps).
• EFFR at 3.88% (prev. 3.88%), volumes at USD 96bln (prev. USD 100bln) on September 18th.
• SOFR at 3.85% (prev. 3.85%), volumes at USD 2.955tln (prev. USD 2.992tln) on September 18th.
• NY Fed RRP op demand at 0.58bln (prev. 0.58bln) across 15 counterparties (prev. 3) on September 21st.