TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 13+ TICKS HIGHER AT 108-27

Treasury yields lower across the curve as oil prices decline, easing inflation fears. At settlement, 2-year -4.3bps at 4.198%, 3-year -4.7bps at 4.248%, 5-year -5.4bps at 4.333%, 7-year -5.6bps at 4.472%, 10-year -5.3bps at 4.623%, 20-year -4.9bps at 5.183%, 30-year -4.0bps at 5.186%.THE DAY: Treasury yields were lower across the curve on Tuesday, with the front end outperforming as oil prices tumbled on renewed optimism surrounding the US-Iran conflict. Brent (Oct '26) fell back below USD 80/bbl after reports from Qatar suggested the language of a deal had been drafted, while source reports indicated an arrangement for the full reopening of the Strait of Hormuz could be announced shortly.The decline in crude prices helped ease inflation concerns, supporting Treasuries and prompting participants to pare back some Fed rate hike expectations. Despite the repricing, money markets continue to lean towards a 25bp September hike, currently assigning around a 57% probability to such an outcome, versus 43% for rates to remain unchanged.US economic data had little lasting impact. The JOLTS report showed job openings fell by more than expected in June, while the quits rate was little changed and the vacancy rate edged lower. Overall, the report pointed to a labour market that continues to cool gradually rather than deteriorate materially, with Oxford Economics noting the data does not warrant concern. Meanwhile, the June trade balance posted a slightly wider-than-expected deficit of USD 73.3bln (exp. USD 73.0bln), with the US-China trade deficit widening to USD 15.8bln from USD 14.4bln. Following the releases, the Atlanta Fed's GDPNow estimate for Q3 growth was revised down to 5.9% from 6.2%.Fed commentary came from Philadelphia Fed President Paulson, who said last week's decision to leave rates unchanged was "not a close call", describing current policy as mildly restrictive, which she believes is appropriate. She reiterated that she remains open-minded on the future policy path, noting that if inflation does not continue to move towards 2%, the Committee should be prepared to recalibrate policy, either through higher interest rates or by keeping rates at their current level for longer.Attention now turns to Wednesday's Quarterly Refunding Announcement, before Friday's nonfarm payrolls report, which will provide the next key update on labour market conditions.Bills US sold 52-week bills at high rate of 3.88%, B/C 3.62x; sold 6-week bills at a high rate of 3.640%, B/C 2.93x US to sell USD 110bln of 4-week bills and USD 100bln of 8-week bills on August 6th; To sell USD 72bln of 17-week bills on August 5th; all to settle August 11th STIRS / OPERATIONS Fed Pricing via CME Fed Watch: Sept 14.2bps (prev. 16.8bps), Dec 32bps (prev 35bps) EFFR at 3.63% (prev. 3.63%), volumes at USD 111bln (prev. USD 108bln) on August 3rd SOFR at 3.65% (prev. 3.66%), volumes at USD 3.055tln (prev. USD 3.205tln) on August 3rd NY Fed RRP op demand at 2.25bln (prev. 2.13bln) across 3 counterparties (prev. 4) on August 4th NY Fed T-Bill Purchases (1-4 month): Accepts USD 5.18bln of USD 36.70bln offered; Offer-to-cover 7.09x