FED: US TSY 30Y BOND AUCTION: HIGH YLD 5.216%; ALLOT 12.10%

Chair Warsh is presented with a critique of trimmed mean PCE measures ("on May 31st, 2026, the Wall Street Journal reported that you want the Federal Reserve to give greater weight to the Dallas Fed's trimmed mean PCE") in that it registered the 2021-22 inflation rise late and was understated vs core PCE. Warsh responds (including a subtle reference to the ex-WalMart CEO's inclusion on his data task force):

• "So none of those are very good measures of underlying inflation. That Wall Street Journal story that you referenced is incorrect, that I have a preferred measure from one of the reserve banks. If I had a preferred measure, I wouldn't have called for a task force to go back to first principles. And the data task force will be looking importantly at inflation measures. My view is that we need new measures to understand the underlying changes in inflation. Am I interested in what's the mean or median price of a good in a big box retailer? You bet I am, and none of these measures capture that. I am super interested in finding new measures to do a better job to help us inform our decisions so that the inflation of the last five years don't continue."
• Recall Warsh said in his April nomination hearing that "The measures I prefer are looking at things that are called trimmed averages, where we take out all of the tail risks, all of the one off items, and we ask ourselves whether the generalized change in prices is having second order effects on the economy. Again, they're not where they should be, but I think that the trend is quite favorable" - as such he appears to be referring in his testimony today to the specific regional Fed measures as opposed to the broad principle.

Tuesday's Europe rates/bond options flow:

• ERQ6 97.43/50/56/62 call condor 5K sold at 1.0
• ERU6 97.50/62/75/87 call condor 8K given at 2.25
• ERU6 97.37/97.50/97.62 call fly paper paid 1.75 on 6K
• ERU6 97.4375/97.50 call spread paper paid 1.25 on 4K
• SFIX6 96.10/96.20/96.25/96.35 call condor paper paid 2.75 on 5K
   

European yields rose again Tuesday though closed off session highs.

• EGBs and Gilts remained under pressure in early trade as oil prices built on Monday's 9+% rise on the re-heightening of tensions and renewed strikes between the US and Iran.
• On the re-open, 10Y Gilt yields gapped up through 5.0% with Bund through 3.1% in marking the session highs.
• The single biggest market-mover of the session was the substantially softer-than-expected US inflation report for June, which eviscerated the previously building expectations for a July Federal Reserve hike and sent bond yields to session lows.
• However, bond gains were tempered in the hour before the cash close after Fed Chair Warsh discounted the importance of the inflation report, and separately, reports emerged of apparent US attacks on Iranian sites.
• The German curve twist flattened with the UK's bear steepening. Periphery/semi-core EGB spreads were mixed though little changed.
• We hear from BOE Gov Bailey in his Mansion House speech (after non-market moving FPC commentary today) after the cash close.
• Looking toward Wednesday we get final June CPI data from Spain and Eurozone industrial production data for May, with ECB's Nagel and Panetta and BOE's Pill making appearances.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 3.4bps at 2.756%, 5-Yr is up 1.4bps at 2.832%, 10-Yr is up 0.4bps at 3.113%, and 30-Yr is down 0.3bps at 3.623%.
• UK: The 2-Yr yield is up 0.1bps at 4.349%, 5-Yr is up 0.4bps at 4.521%, 10-Yr is up 0.7bps at 4.977%, and 30-Yr is up 0.9bps at 5.679%.
• Italian BTP spread up 0.8bps at 77.1bps / Spanish down 0.1bps at 45.7bps