TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLES 5+TICKS HIGHER AT 104-23+

Yield curve flattens amid on dovish Fed williams ahead of US CPI. At settlement, 2-year -0.2bps at 4.789%, 3-year -0.7bps at 4.916%, 5-year -1.6bps at 5.005%, 7-year -2.4bps at 5.106%, 10-year -2.5bps at 5.217%, 20-year -4.1bps at 5.606%, 30-year -3.9bps at 5.561%.

THE DAY: The Treasury curve flattened on Tuesday, with front-end yields little changed while long-end yields declined, seemingly benefiting from haven demand amid a technology-led equity sell-off.

Oil prices were mixed but generally climbed throughout the US session, with Saudi-Houthi tensions remaining elevated as both sides threatened energy infrastructure. Meanwhile, US President Trump warned the Houthis that he would still be in office after the midterm elections and would not forget their actions against Saudi Arabia. Initial upside in short-end yields on higher energy prices faded in response to the release of a Bloomberg TV interview with Fed Vice Chair Waller, who sees no need for a rate hike in 2027 at this time. He added that he does see one more interest-rate hike as appropriate in 2026.

With the cash Treasury market closed on Monday, trading resumed against a backdrop of developments from the weekend and the previous session. US memory stocks remained under pressure amid concerns over increased competition from China, weighing on broader equity sentiment and potentially contributing to a flight-to-quality bid in Treasuries. Meanwhile, some of the weakness in technology stocks was also attributed to comments from Broadcom (AVGO) CEO, likening tech investing to a casino.

Elsewhere, other Fed commentary saw Governor Waller acknowledge that higher yields could do some of the Fed's work in restraining demand, potentially strengthening the case for an October pause. Meanwhile, Chicago Fed President Goolsbee warned that inflation remains persistently elevated, while noting that the labour market is still stable. Asked whether the Fed should hike again in October, Goolsbee suggested that persistent inflation would warrant further tightening.

Attention now turns to Wednesday's US CPI report, which will help shape expectations for the Fed's next policy move, ahead of Thursday's PPI release and Fed Chair Warsh's remarks early Friday morning BST.

• US sold 6-wk bills at high-rate 3.980%, B/C 2.58x; Sold 3-month bills at a high rate of 4.085%, B/C 2.68x; Sold 6-month bills at a high rate of 4.200%, B/C 2.76x
• US to sell USD 110bln of 4-week bills and USD 105bln of 8-week bills on October 15th; to sell USD 75bln of 17-week bills on October 14th; all to settle October 20th

• Fed Hike Pricing via CME FedWatch: Oct 5.4bps (prev. 5.3bps), Dec 27.6bps (prev. 27.1bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 110bln (prev. USD 117bln) on October 9th
• SOFR at 3.87% (prev. 3.87%), volumes at USD 2.961tln (prev. USD 2.963tln) on October 9th
• NY Fed RRP op demand at 0.275bln (prev. 0.30) across counterparties 1 (prev. 1) on October 13th