TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLE 8 + TICKS LOWER AT 105-06

Yield curve steepens after soft PPI. At settlement, 2-year -1.2bps at 4.872%, 3-year -1.0bps at 4.930%, 5-year +0.8bps at 4.980%, 7-year +1.5bps at 5.055%, 10-year +2.0bps at 5.153%, 20-year +2.3bps at 5.528%, 30-year +2.3bps at 5.481%.

THE DAY: The Treasury yield curve steepened on Friday, with front-end yields moving lower, seemingly supported by risk-off sentiment and the softer-than-expected US PPI report.

The October PPI report leaned soft, with headline inflation cooling more than expected, while core PPI was in line with forecasts but slowed from the prior month. The softer report offered some relief following the hotter-than-expected October CPI print earlier in the week, which had reignited concerns over inflation and the possibility of a 50bps Fed hike in December. As a reminder, Fed Governor Waller suggested he could support a half-point move if October core CPI rose 0.3% or more, a threshold subsequently met. However, the softer PPI report could strengthen the case for a more measured 25bps hike rather than a 50bps move.

Following this week's inflation reports, Bank of America expects 25bps rate hikes in December, January and March. Fed commentary also remained in focus, with Goolsbee (2027 voter) reiterating concerns over inflation, noting that the Fed still has work to do and that the pace of tightening will depend on inflation progress. Collins stressed that she remains focused on incoming data rather than individual reports and warned that rates may need to rise further than expected, although she continued to favour a careful approach to policy.

Elsewhere, risk sentiment deteriorated amid renewed selling in technology and AI-related stocks, with the Nasdaq underperforming. The risk-off move may have provided additional support to Treasuries following the opening bell. However, rising oil prices offered an offsetting headwind after Axios reported that the Mossad Director was in Washington for talks with senior Trump administration officials to push for a resumption of military strikes against Iran, reigniting concerns over energy-driven inflation pressures.

Looking ahead, attention turns to next week's US retail sales report and FOMC Minutes. Although the minutes may be viewed as somewhat stale following the latest inflation developments, investors will scrutinise the discussions for indications of policymakers' appetite for further tightening and the potential pace of future rate hikes.

• Fed Hike Pricing via CME FedWatch: Dec 27.1bps (prev. 28.3bps), Mar 62.3bps (prev. 65.1bps).
• EFFR at 3.88% (prev. 3.88%), volumes at USD 99bln (prev. USD 98bln) on November 12th
• SOFR at 3.90% (prev. 3.89%), volumes at USD 3.138tln (prev. USD 3.159tln) on November 12th
• NY Fed RRP op demand at USD (prev. USD 0.25bln) across counterparty (prev. 1) on November 12th.