TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLE 7+ TICKS LOWER AT 107-02+

T-notes sold across the curve after buyback announcement disappoints. At settlement, 2-year +2.5bps at 4.425%, 3-year +4.7bps at 4.519%, 5-year +4.5bps at 4.611%, 7-year +4.2bps at 4.715%, 10-year +4.1bps at 4.833%, 20-year +3.1bps at 5.286%, 30-year +3.6bps at 5.285%.

THE DAY: Treasury yields rose across the curve on Wednesday. Yields had already been moving higher alongside oil prices following overnight attacks on Iranian and US tankers, which helped push Brent crude above USD 100/bbl.

However, the highlight of the session was the Treasury's long-end buyback announcement. Treasury announced it will buy back a maximum of USD 6bln of 10-20yr nominal coupons on Thursday, above its previous guidance for operations to be "at least" USD 4bln. Despite the increase, the announcement disappointed the market and added further pressure to T-notes, with many participants expecting a USD 4-6bln operation but some expectations were as high as USD 10bln.

The subsequent move higher in yields provided additional concession ahead of the 10-year auction, which was ultimately very strong. The 10-year yield was already trading above the previous auction's high yield, while the buyback announcement added roughly another 5bps of yield ahead of the offering. The auction subsequently stopped through the WI by 1.5bps, the largest stop-through since April 2025, while the bid-to-cover rose notably and dealers were left with an exceptionally small takedown.

The strong auction helped T-notes recover from session lows. Futures traded within a 106-31+ to 107-13+ range, with the high seen during the morning before the buyback announcement sent T-notes to their session low. Futures subsequently reclaimed the 107-handle heading into settlement following the stellar auction results.

There was no major US data to digest on Wednesday, with attention now turning to Thursday's PPI report ahead of CPI on Friday. Focus will also be on Thursday's 10-20yr buyback operation, particularly the amount of securities offered to Treasury and how much of the USD 6bln maximum Treasury ultimately accepts.

SUPPLY

• US sold USD 39bln of 10-year notes; Stop through 1.5bps
• US sold 17-week bills at a high rate of 3.895%, B/C 2.73x

STIRS / OPERATIONS

• Fed Hike Pricing via CME FedWatch: Sept 15.1bps (prev. 14.9bps), Dec 36.4bps (prev. 35.1bps).
• EFFR at 3.63% (prev. 3.63%), volumes at USD 107bln (prev. USD 103bln) on September 8th
• SOFR at 3.64% (prev. 3.65%), volumes at USD 2.904tln (prev. USD 2.888tln) on September 8th
• NY Fed RRP op demand at 0.43bln (prev. 0.63bln) across 6 counterparties (prev. 3) on September 9th
• Treasury Buyback [Cash mgmt, 1mth-2year, max USD 12.5bln]: Accepts USD 12.5bln of 28.027bln offers; accepts 27 of 45 eligible securities. Offer to cover 2.24x