Geopolitics And Dovish Fed Rhetoric Fuel Early Bull Flattening

The Treasury curve has bull flattened in overnight trade, with yields sustaining a sharp drop in early European trade.

• Front futures remain just off session highs, which were October's best levels: Dec 10Y futures (TY) up 17/32 at 108-08 (L: 107-21 / H: 108-11). The 2-Yr yield is down 0.7bps at 4.9631%, 5-Yr is down 6bps at 4.5536%, 10-Yr is down 9.3bps at 4.5603%, and 30-Yr is down 10.7bps at 4.7257%.
• A few factors fuelling the Treasury rally: more geopolitical risk (the sharp rally in the morning came alongside news of two-way missile fire between Israel and Lebanon), and further softening in Fed tightening rhetoric (Gov Bowman, at the hawkish end of the FOMC, said rates "may" need to rise further, vs last week "likely be appropriate").
• Later we hear from Waller, Bostic and Collins, and we also get the minutes of the FOMC's September meeting.
• The main event data-wise is September PPI, which unusually comes out before the CPI data tomorrow - attention will be on key components that feed into the Fed's preferred PCE measure.
• The supply highlight is $35B 10Y re-opening.