US TSYS: Week Ends On A Soft Note, With Long Weekend And Payrolls Eyed

Treasury yields rose Friday to cap a negative week, as solid economic data continued to set a cautious tone ahead of next week's key nonfarm payrolls report.

• Treasuries saw a modest sell-off in early trade as solid activity data weighed again. Core PCE inflation was in line but consumer spending and MNI Chicago PMI surprised to the upside (softer UMichigan consumer inflation expectations helped limit the hawkish follow-through).
• The sell-off resumed in the afternoon as volumes picked up sharply after the European cash market close, characterized by bear steepening in the curve.
• There was no obvious evident catalyst outside of the aforementioned solid data, but some desks speculated on the impact of month-end dynamics and position squaring ahead of the long weekend and next Friday's payrolls.
• 10Y yields were set for their highest weekly close in 3 weeks, having fully erased the Powell-Jackson Hole rally from last Friday.
• All that being said, Dec TY futures traded in a relatively narrow 14 point range on the day, with a sense of a "holding pattern" prevailing ahead of a busy week. Dec 24 T-Note future is down 10/32 at 113-18, having traded in a range of 113-16.5 to 113-30.5.
• Next week's holiday-shortened calendar (U.S. markets close for Labor Day Monday) is highlighted by Friday's employment report, the outcome of which will more or less cement market expectations for either a 25bp or 50bp Fed cut two weeks later. Payrolls are preceded by a slew of employment data (jobless claims, JOLTS, ADP), as well as the ISM Services and Manufacturing surveys.
• Cash yields: the 2-Yr yield is up 3.3bps at 3.9268%, 5-Yr is up 4.7bps at 3.7131%, 10-Yr is up 4.8bps at 3.9092%, and 30-Yr is up 4.7bps at 4.1928%.