STIR: Patient Hammack Adds To Hawkish Shift On PMIs
- Fed Funds implied rates have seen a further hawkish tilt on Cleveland Fed’s Hammack (’26 voter, hawk) indicating she doesn’t see the case for a September cut as data currently stand, something we suspected but hadn’t seen confirmation.
- Building on surprisingly strong flash PMIs, there are 18bp of cuts priced for Sept vs 20bp prior to today’s data and 21.5bp before yesterday’s FOMC minutes on balance showed more caution about inflation than the labor market.
- Cumulative cuts from 4.33% effective: 18bp Sep, 30bp Oct, 48.5bp Dec, 59.5bp Jan and 72.5bp Dec.
- The 48.5bp of cuts to year-end compares with ~56bp prior to both yesterday's FOMC minutes and last Tuesday's CPI release.
- The SOFR curve sits steeper on the day, with yield increases led by the Z5 (+7bp) whilst terminal yields are +3.5bp at 3.115% (SFRH7) to only unwind yesterday’s dip. The latter probes the hawkish side the 125bp +/-5bp range of cuts from current levels mostly seen since the Aug 1 payrolls report.
- Recapping today’s data, 0830ET data saw jobless claims surprise higher but it was a measured increase whilst the Philly Fed index missed but with another shift higher in prices paid as it starts to eye 2021/22 peaks.
- It was followed by flash PMIs with the main upside of the day as activity growth hit its strongest of the year and selling price inflation hit a three-year high.
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US TSYS/SUPPLY: Treasury Ups Bill Sizes Again As Cash Rebuild Picks Up Pace
Treasury continued to up the size of 4- and 8-week bills, rising $5B apiece for Thursday's auctions to $95B and $85B, respectively. The new 4-week level will match the all-time largest auctions seen over the last couple of years, with 8-weeks remaining below the $90B peak.
- This is the 3rd consecutive weekly increase - they're up from $55B/$45B at the beginning of the month, prior to the lifting of the debt limit. 17-week auction sizes were unchanged at $65B.
- The increase is something of a surprise (Wrightson ICAP this morning wrote "We think the Treasury has completed its current ramp-up of bill offering sizes"), in a possible sign that Treasury is not necessarily going to back-load its rebuild of the Treasury General Account post-debt limit: it said after the debt limit was lifted that it is aiming for a cash balance of $500B by end-July (vs $315B at end-last week) and $850B by end-September.
- Upon settlement next Tuesday, the bills will raise $60B in net cash.
- We expect to hear a little more about cash management plans in next week's Refunding round. For the foreseeable future, bills are going to be the moving part in meeting financing requirements, with coupon auction sizes not expected to be increased for several quarters at least. We'll publish our Refunding preview later this week.
US 10YR FUTURE TECHS: (U5) Monitoring Resistance
- RES 4: 112-15 61.8% retracement of the Apr 7 - 11 sell-off
- RES 3: 112-12+ High Jul 1 and a bull trigger
- RES 2: 111-28 High Jul 3
- RES 1: 111-13+ High Jul 21 & Jul 10
- PRICE: 111-11+ @ 16:10 BST Jul 22
- SUP 1: 110-08+ Low Jul 14 & 16
- SUP 2: 110-03 76.4% retracement of the May 22 - Jul 1 bull leg
- SUP 3: 109-28 Low Jun 6 and 11
- SUP 4: 109.25 Low May 27
Treasury futures traded higher again Tuesday, extending the firm start to the week. The move higher has resulted in a break of the 20-day EMA, strengthening the recovery, and markets have met resistance at 111-13+, the Jul 10 high. A clear break of this hurdle would highlight a stronger reversal. Key support lies at 110-08+, the low on Jul 14 and 16. A move through this support would reinstate the recent bearish theme.
BELGIUM AUCTION PREVIEW: On offer next week
Belgium will look to sell the following OLOs at its auction next Monday, with the target size set to be announced on Friday:
- the 2.60% Oct-30 OLO
- the 3.10% Jun-35 OLO
- the 3.50% Jun-55 OLO
