US TSYS: Treasuries Decline, Fed Gov Barr Urges Caution on Rate Adjust

The Cleveland Fed nowcast has headline CPI at 0.30% M/M and core CPI at 0.25% M/M in August. That headline estimate is the nowcast’s highest of the year (the only one higher in the last 15 months was December 2024’s 0.38%) and comes after two consecutive 0.04pp underestimates of the actual figure (July: 0.16% vs actual 0.20%). 

• The core tracker meanwhile is a the highest since March, after undershooting the actual in July (0.24% vs 0.32% actual, biggest undershoot since January) after an accurate reading in June (0.23%).
• MNI median unrounded est for core is 0.32% M/M, and for headline 0.36%

• The median of 25 analysts reviewed below sees no more rate cuts ahead, with the deposit rate at 2.00%.
• There is still a dovish skew to that, with 7 looking for one cut to 1.75% and 4 looking for two cuts to 1.50%, but it’s nevertheless a sizeable change from ahead of the July meeting when there was a clearcut consensus for a terminal 1.75% rate.
• Where analysts do expect a cut, December looks most likely, on the assumption that it could take a while for softer conditions to materialise and presumably with the added perk of being a projections meeting.
• Explicit rate hike expectations are starting to feature a little more prominently but remain firmly in the minority, with the earliest seen by Deutsche Bank and UBS in late 2026. 

Option desks reported mixed SOFR and Treasury flow Tuesday, leaning toward calls even as underlying futures look to finish lower/near lows. Projected rate cuts recede slightly from pre-open (*) levels: Sep'25 at -27.2bp (-27bp), Oct'25 at -45.9bp (-47.3bp), Dec'25 at -67.9bp (-69.2bp), Jan'26 at -79.9bp (-82.3bp).

• SOFR Options:
  • -4,000 SFRH7 96.00/98.00 risk rev w/ SFRM7 96.12/98.12 risk rev, both call over 1 total
  • 3,000 96.25/96.37/96.50/96.62 call condors ref 96.36
  • Block, 6,500 SFRZ5 96.62/96.75 call spds 1.75
  • +2,500 SFRM6/SFRU6 97.50/98.25 call spd strip, 18.5
  • 2,000 SFRZ5 96.37/96.43/96.50 call flys ref 96.355
  • 2,000 SFRZ5 96.25/96.37 call spds ref 96.38
  • 2,850 SFRU5 96.00/96.06/96.18/96.25 call condors, ref 95.985
  • +5,000 SFRU5 96.00/96.12 call spds, 1.5
  • +2,500 SFRZ5 95.81/95.93 put spds, 0.5 vs. 96.35/0.05%
  • +5,000 SFRZ5 96.50/96.62/96.75/96.87 call condors, 1.5
  • +10,000 SFRU5 95.93/96.00/96.06 call flys, 2.75
  • 2,000 SFRU5 95.87/96.00/96.12 iron flys, 4.0 ref 95.99
  • Block, +5,000 SFRU5 95.87/95.93/96.00 call flys, 2
  • Block, +2,500 SFRU5 96.00/96.12 call spds, 1.25
  • Block/screen, +4,000 SFRZ5 96.50/96.62/96.75/96.87 call condors, 1.5
  • +6,000 SFRZ5 96.00/96.12 put spds, 1.75
  • -2,000 0QU5 97.00/97.50 call spd vs. 2QU5 97.00/97.37 call spds, 2.0 net
  • +5,000 SFRU5 96.00 calls, 1.75
• Treasury Options:
  • 2,400 TUV5 104.75/105 1x2 call spds ref 104-14.25
  • 2,400 FVZ5 110 calls ref 109-29.25
  • 2,500 FVV5 109.75 puts, 17.5 ref 109-28.25
  • 5,000 TUV5 104.25/104.5 call spds ref 104-14.88
  • 5,000 TYV5 113.5/114 call spds ref 113-13
  • +2,000 TYV5 111.75/112.75 put spds 13 vs. 113-08.5/0.08%
  • +1,500 TYV 112/113 put spds, 15 vs. 113-16.5/0.23%
  • +1,500 TUH6 104.62/105.25 call spds, 13.5 vs. 104-14.75/0.20%