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Treasuries See Large Rally As Waller Brings Up Potential Cut Timing

US TSYS
  • Cash Treasuries have seen a quick further bid to fresh session highs across 2-5Y tenors, but it appeared to lack a headline driver and has since been retraced.
  • It still leaves a significant rally on the day though, with 2-3Y tenors 10bp richer, having more than reversed limited cheapening impulse from the largest tail for a 7Y Tsy auction since Nov 2022 at 2.1bps (both 5Y and 10Y yields are both 1-2bps lower than pre-auction).
  • TYZ3 has recently touched the joint session high of 109-17 to further push above the bull trigger at 109-08+ (Nov 17/22 high) and open 109-20 (Sep 19 high).
  • The day’s main driving force has been Governor Waller leaning dovish by touting potential cut timings. Specifically, in Q&A: "If you see this [lower] inflation continuing for several more months, I don't know how long that might be—3 months? 4 months? 5 months?—you could then start lowering the policy rate because inflation's lower."
  • Governor Bowman (voter) reiterating that she continues to expect the need for a further hike had little sway. Similarly, latest unscheduled BIS text remarks from NY Fed’s Williams (voter) saying “the recent news about the long-run anchoring of inflation expectations in the US is mostly reassuring” weren’t particularly surprising.
  • Tomorrow sees the second Q3 GDP release including core PCE before Fedspeak from Cleveland Fed’s Mester (’24 voter) on financial stability and the Fed’s Beige Book.
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