Published 31 Aug 2026, 19:45Subscribers had it 20 minutes earlier, at 19:25

TREASURY WRAP: T-NOTE FUTURES (Z6) SETTLES 7 TICKS LOWER AT 107-21

Short-end yields pause after Friday rally on hawkish Fed Chair Warsh speech, belly and long-end yields creep higher. At settlement, 2-year -1.0bps at 4.350%, 3-year -0.2bps at 4.410%, 5-year +1.6bps at 4.507%, 7-year +2.3bps at 4.623%, 10-year +2.8bps at 4.758%, 20-year +3.6bps at 5.248%, 30-year +3.6bps at 5.249%.

THE DAY: The Treasury curve steepened to start the week amid a sold long end. US 2yr yields saw a slight unwind of the hawkish reaction seen towards Fed Warsh's speech on Friday. Perhaps this comes as money markets are still lacking conviction behind a September rate hike, with many on Wall St. remaining in the 2026 hold camp. With inflation currently the main concern for Fed officials and only one CPI report due before the Sept meeting, the bar is high for Warsh and others to join their three fellow hawkish dissenters at the July meeting (Hammack, Kashkari, Logan).

Geopolitical newsflow dominated the tape on Monday, with US-Iran relations continuing to deteriorate with no end in sight. Inflationary concerns will once again increase as US-Iran strikes resumed over the weekend due to a preemptive US strike on Iranian missile launchers over concerns of the placement of sea mines in the Strait of Hormuz. Tensions in the short term are likely to continue, as suggested by Trump saying the US will respond to the Iranian attacks on US bases in the region.

Ahead, focus will stick on the Fed with Barr due on Tuesday and the influential Waller on Thursday. Key data this week includes NFP, ISM Manufacturing PMI, JOLTS, ADP.

SUPPLY

US sold 3-mnth bills at high-rate 3.770%, B/C 2.77x; sold 6-mnth bills at high-rate 3.885%, B/C 2.63x

STIRS / OPERATIONS

Fed Hike Pricing via CME FedWatch: Sept 16.5bps (prev. 14.4bps), Dec 37.4bps (prev. 37.8bps).
EFFR at 3.63% (prev. 3.63%), volumes at USD 123bln (prev. USD 111bln) on August 28th
SOFR at 3.65% (prev. 3.64%), volumes at USD 2.808tln (prev. USD 2.836tln) on August 28th
NY Fed RRP op demand at 6.726bln (prev. 0.175bln) across 4 counterparties (prev. 1) on August 31st

Subscribers had this at 19:25. Published here 19:45.

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Context

A modestly lower T-note settlement alongside a steeper curve fits the well-worn bear-steepening template: long-end supply and inflation risk premia do the damage at the back of the curve while the front end holds or retraces, anchored by policy expectations. The pattern described here, hawkish commentary lifting front-end yields followed by a partial unwind as rate markets decline to fully price the threatened move, is the standard two-step after hawkish-sounding officials speak outside a decision window; money markets have historically required corroborating inflation prints before converting rhetoric into pricing, particularly when the meeting in question is some distance away. The geopolitical overlay, escalation touching the Gulf and shipping chokepoints, transmits through crude and freight costs into inflation expectations, which steepens the nominal curve via the long end rather than the belly, consistent with the shape of this move. The question of whether hawkish dissenters are joined by a broader bloc is the live tell: in past tightening-bias episodes, the count and identity of dissenters, plus how centrist speakers frame the data bar, has mattered more than any single speech. Near-term follow-ons are the scheduled Fed speakers, the labour and survey data in the days ahead, and whether bill auction demand and front-end fixings confirm or undermine the pause in short yields.

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