TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLED HALF A TICK LOWER AT 104-15+

T-notes pare initial downside as oil falls from peaks and following another stellar 10-year auction. At settlement, 2-year -2.8bps at 4.770%, 3-year -1.1bps at 4.913%, 5-year -0.9bps at 5.027%, 7-year -0.3bps at 5.153%, 10-year unchanged at 5.286%, 20-year +1.3bps at 5.715%, 30-year +0.8bps at 5.669%.

THE DAY: Yields were lower on Wednesday, with the curve bull steepening as the front end led the move. The long end was little changed, while the 2-year yield fell c.4bps.

Yields had been rising throughout the European session amid ongoing fiscal concerns, with US Treasuries tracking Eurozone debt lower, while oil prices were also rising at the time, adding pressure to the curve. Regarding France, the WSJ reported that the Finance Minister said France was considering issuing more shorter-term debt amid the recent bond-market turmoil. However, the Finance Ministry later stated that there had been no change to its bond issuance strategy, resulting in choppy trade across global fixed income, particularly OATs.

Meanwhile, oil prices pared from their peaks after IEA members expressed support for accelerating the oil stock releases announced as part of the collective action in March, potentially bringing around 100mln bbls to the market. The move saw crude reverse from its highs to ultimately settle in the red. In turn, T-notes moved higher, predominantly at the front end.

Another leg higher was seen following a stellar 10-year T-note auction. Overall, the auction saw excellent demand across the key metrics, with the 1.7bp stop-through, strong B/C, elevated indirect participation and exceptionally low dealer takedown particularly impressive. The substantially higher outright yield appears to have helped attract demand, with the 5.300% high yield some 47bps above last month's auction and 74bps above the six-auction average. The fact that this was also the final 10-year auction before the November midterms may have added to the appeal of locking in current yields, although that is harder to establish directly from the auction data.

FOMC Minutes were a non-event. On yields, the release noted that changes in real rates contributed to most of the net increase in longer-maturity Treasury yields.

• US sold USD 39bln of 10-year notes; Stop through 1.7bps.
• US to sell USD 39bln 10yr notes on October 7th; and USD 22bln 30 year bonds on October 8th; all to settle on October 15th

• US sold 17-wk bills at a high rate of 4.105%, B.C 3.10x
• US Treasury to sell USD 110bln of 4-week bills and USD 105bln of 8-week bills on October 8th; all to settle October 13th

• Fed Hike Pricing via CME FedWatch: Oct 4.3bps (prev. 4.9bps), Dec 24.1bps (prev. 25.5bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 120bln (prev. USD 121bln) on October 6th
• SOFR at 3.90% (prev. 3.89%), volumes at USD 2.997tln (prev. USD 3.007tln) on October 6th
• NY Fed RRP op demand at 2.34bln (prev. 0.41bln) across 15 counterparties (prev. 16) on October 7th
• US Treasury to buy back up to USD 6bln of 20-30-year nominal coupons in a liquidity support operation on October 8th (prev. USD 6bln)