TREASURY WRAP: T-NOTE FUTURES (H6) SETTLE 8 TICKS HIGHER AT 112-24

** TREASURY WRAP: T-NOTE FUTURES (H6) SETTLE 8 TICKS HIGHER AT 112-24**

• T-note futures rose on softer-than-expected CPI data and a robust 5-year TIPS auction.
• Yields fell across the curve, with notable demand in the 5-year TIPS auction.
• Market participants are observing potential Fed Chair candidates as mentioned by President Trump.

T-note futures settled 8 ticks higher at 112-24, driven by softer-than-expected CPI data and a strong 5-year TIPS auction. The CPI data showed a year-over-year increase of 2.6% for core CPI and 2.7% for headline CPI, both below the anticipated 3.0%. This unexpected softness in inflation figures prompted a rally in T-notes, although the rally was tempered as market participants digested the nuances of the data, including a potential sampling error highlighted by UBS analysts.

The 5-year TIPS auction was a focal point, with the US Treasury selling USD 24 billion at a high yield of 1.433%, stopping through the when-issued by 0.7 basis points. This auction was marked by strong demand, particularly from indirect bidders who took 72.63% of the supply, significantly above the previous 62.1% and the 67.7% average. This robust demand reduced the share taken by dealers to just 5.43%, a notable decline from the previous 13.5%.

In the broader market, yields fell across the curve, with the 10-year Treasury yield dropping 3.5 basis points to 4.116%. The decline in yields reflects market sentiment that the softer CPI data could influence future Federal Reserve policy decisions, with market-implied Fed rate cut pricing showing slight increases across various maturities.

President Trump's comments on potential Federal Reserve Chair candidates added another layer of interest. He mentioned speaking to several individuals, including Waller, Bowman, Hassett, and Warsh, and indicated that an announcement might come in the next few weeks, though possibly not before the New Year.

In the short-term funding markets, the NY Fed's reverse repo operations saw increased demand, while the effective federal funds rate (EFFR) and the secured overnight financing rate (SOFR) remained stable. The Treasury's buyback operation for 20- to 30-year bonds was successful, accepting USD 2 billion of offers.

Trader Insight:

• Some traders may consider monitoring US 10-Year Treasury yields for further movements following the CPI data.
• Market participants are watching the iShares 20+ Year Treasury Bond ETF (TLT) for potential impacts from the strong 5-year TIPS auction.
• Observers are discussing potential positioning in USD/JPY as the softer CPI data could influence Fed rate expectations.
• Analysts note that traders are assessing the impact of President Trump's comments on Fed Chair candidates on financial markets.

Disclaimer: This is not trading advice. For informational purposes only.