FED: US TSY 5Y AUCTION: NON-COMP BIDS $96 MLN FROM $70.000 BLN TOTAL

Writing after Fed Chair Powell’s Jackson Hole address, Goldman Sachs view the move up in the USD over the past week “as a short incline in an otherwise downward descent”, seeing “multiple paths to a weaker Dollar, some more benign than others.” 

• “One of those benign paths is our baseline scenario, where we expect successive Fed cuts to keep elevated recession risk at bay but nevertheless erode the attractiveness of the US front-end in a stall speed economy.”
• They now expect incoming data to shape the market debate shifting to a 25bp vs 50bp cut next month.
• “If the downward revisions to job growth in the last payrolls report—typical around cycle turning points—portend a more significant slowing in the labour market, policy may need to adjust more rapidly as well, putting even more pressure on the Dollar.”
• “But it is also possible that firmer tariff-induced inflation is seen as a policy constraint that pressures equity risk, causing Dollar weakness to be more narrowly concentrated against ‘safer’ currencies like JPY, EUR, and CHF.”
• Dollar shorts should also provide exposure to concerns about the Fed’s independence.

Periphery/semi-core EGB spreads widened amid a broader sell-off Monday, with the Gilt market closed for holidays.

• EGBs were under some pressure in early trade, with Bund yields moving back above the levels seen just prior to Friday's speech by Federal Reserve Chair Powell at Jackson Hole which triggered a broad global bond rally.
• And just over an hour before the European cash close, OATs sold off and Bunds rallied in a risk-off move after French PM Bayrou called for a confidence vote in the government to be held on September 8 (an extraordinary meeting that is two weeks before lawmakers were set to return) in a gambit to get his controversial fiscal legislation passed.
• Having already widened modestly earlier in the session, 10Y OAT/Bund jumped to its widest close since April at 75.2bp.
• Similarly, earlier widening in other periphery EGBs (Italy/Greece most notably) extended after the French news.
• Earlier in the session, German IFO was broadly in line with expectations.
• The belly underperformed on the German curve, in a bear-flattening lean overall.
• Focus for the week is on national/Eurozone flash August inflation data, most of which arrives on Friday.

Closing Yields / 10-Yr EGB Spreads To Germany

• Germany: The 2-Yr yield is up 2.7bps at 1.975%, 5-Yr is up 3.8bps at 2.315%, 10-Yr is up 3.5bps at 2.757%, and 30-Yr is up 2.3bps at 3.332%.
• Italian BTP spread up 3.4bps at 83.8bps / French OAT up 5.7bps at 75.2bps

Latest Tsy quarterly futures roll volumes from September'25 to December'25 below. Percentage complete currently at or near 50%. "First Notice" date next week Friday, August 29. Current roll details:

• TUU5/TUZ5 appr 902,100 from -8.88 to -8.5, -8.62 last; 49% complete
• FVU5/FVZ5 appr 962,400 from -5.25 to -5.0, -5.25 last; 45% complete
• TYU5/TYZ5 appr 760,100 from -1.25 to -0.75, -1.0 last; 43% complete
• UXYU5/UXYZ5 app 997,700 from -0.5 to +0.25, -0.25 last; 47% complete
• USU5/USZ5 appr 477,900 from 12.25 to 13.0, 12.25 last; 50% complete
• WNU5/WNZ5 appr 550,600 from 7.25 to 8.0, 7.25 last; 50% complete
• Reminder, Sep futures don't expire until next month: 10s, 30s and Ultras on September 22, 2s and 5s on September 30. Meanwhile, Sep'25 Tsy options will expire LAST Friday, August 22.