US TREASURY WRAP: T-NOTE FUTURES SETTLE 4 TICKS LOWER AT 104-19

Treasury yields bear flatten as oil prices climb on Middle East tensions, with attention turning to CPI and Fed Chair Warsh next week. At settlement, 2-year +2.9bps at 4.791%, 3-year +3.1bps at 4.923%, 5-year +2.9bps at 5.021%, 7-year +1.9bps at 5.132%, 10-year +0.7bps at 5.242%, 20-year -0.3bps at 5.652%, 30-year -0.6bps at 5.601%.

THE DAY: The Treasury curve flattened on Friday, with the front end sold. There was little economic data or Fed commentary to digest, although oil prices gradually moved higher throughout the session, ultimately settling in positive territory. Firmer crude prices appeared to weigh on the front end amid renewed inflation concerns, contributing to the bear flattening.

The gains in oil followed escalatory commentary and actions from the IRGC, which has been expanding strikes beyond the Strait of Hormuz. The IRGC warned that vessels violating restrictions would be pursued and punished beyond the Strait, while sources reported that the Houthis had planted mines in the Bab al-Mandab area, adding to concerns over energy supply disruptions in the Middle East.

On the data front, the preliminary September UoM consumer sentiment survey disappointed, with the headline index falling to 46.3 from 48.1, below the expected 47.8. Both current conditions and forward-looking expectations declined, although the latter exceeded forecasts. Meanwhile, both one- and five-year inflation expectations increased, adding to concerns over the inflation outlook.

Attention now turns to next week's US inflation reports, which will help shape expectations for the Fed's next policy move. The probability of an October rate hike has fallen considerably following softer-than-expected August core PCE, weak September NFP data and recent commentary from Fed officials, including Williams, Jefferson, Bowman and Waller, suggesting there is little urgency to deliver consecutive rate hikes following September's move. Fed Chair Warsh is also scheduled to speak at the IMF in Bangkok the day after the US CPI report, with participants looking for his assessment of the recent data and implications for the policy outlook. However, given Warsh's previously expressed reluctance towards explicit forward guidance, he may avoid signalling a definitive policy path.

• US to sell USD 82bln 26-week bills, to sell USD 95bln 13-week bills, and to sell USD 95bln 6-week bills on October 13th; all to settle on October 15th

• Fed Hike Pricing via CME FedWatch: Oct 4.9bps (prev. 4.3bps), Dec 25.1bps (prev. 24.1bps)
• EFFR at 3.88% (prev. 3.88%), volumes at USD 117bln (prev. USD 108bln) on October 8th
• SOFR at 3.87% (prev. 3.88%), volumes at USD 2.963tln (prev. USD 2.968tln) on October 8th
• NY Fed RRP op demand at 0.30 (prev. 0.34bln) across 1 counterparties (prev. 2) on October 9th