TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLE 7 TICKS LOWER AT 104-06+

Yield curve bear steepens despite soft PCE data. At settlement, 2-year +1.0bps at 4.889%, 3-year +2.6bps at 4.998%, 5-year +4.5bps at 5.093%, 7-year +5.7bps at 5.198%, 10-year +6.1bps at 5.295%, 20-year +7.2bps at 5.691%, 30-year +7.5bps at 5.641%.

THE DAY: Treasury yields rose across the curve on Wednesday, with the long end leading the move to see the curve bear steepen. There was plenty of data to digest, with yields initially rising after ADP private payrolls increased 90k in September, above the prior 38k and 70k forecast, pointing to solid private-sector hiring. The move swiftly pared, however, with participants cognisant of the historically weak relationship between ADP and Friday's official NFP report.

Shortly after, August PCE and final Q2 GDP data were released. PCE was soft, with prior figures revised lower, although much of the softness reflected well-documented BEA methodology changes affecting software and accessories, portfolio management, and legal services. Yields initially fell across the curve before swiftly paring the move. Oxford Economics noted the report is unlikely to prevent the Fed from hiking again, highlighting that the Fed tends to look through inflation tied to financial services and instead places greater emphasis on market-based PCE, which accelerated to 0.4% M/M from 0.1%, while the core market-based measure rose 0.3% from 0.1%.

Final Q2 GDP growth was revised higher to 2.2% from 2.1%, despite expectations for a revision down to 1.5%, while consumer spending accelerated to 3.8% from 0.5%, above the 3.4% forecast, pointing to a robust consumer. Many Fed speakers were scheduled but little new was said, while following the data Goldman Sachs pushed back its next Fed hike forecast to December from October.

On geopolitics, oil prices climbed throughout the session amid supply concerns after the Houthis reportedly hit the Saudi Abqaiq oil city, although front-end yields remained relatively anchored despite the rise in energy prices. Money markets pared hawkish Fed bets further, with October pricing falling to 9.8bps from 12.9bps and December to 30.6bps from 33.6bps.

Supply

Bills

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Oct 9.8bps (prev. 12.9bps), Dec 30.6bps (prev. 33.6bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 111bln (prev. USD 110bln) on September 29th
• SOFR at 3.88% (prev. 3.90%), volumes at USD 2.967tln (prev. USD 2.964tln) on September 29th
• NY Fed RRP op demand at 11.54bln (prev. 11.45bln) across 18 counterparties (prev. 10) on September 30th
• US Treasury announced it will buyback USD 6bln of 10-20year bonds on Thursday, matching the prior size.