TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 10+ TICKS LOWER AT 108-03

Treasury yields advanced on Thursday as oil prices continued to climb while jobless claims fell to a multi-decade low. At settlement, 2-year +5.6bps at 4.360%, 3-year +5.4bps at 4.395%, 5-year +5.0bps at 4.457%, 7-year +5.0bps at 4.576%, 10-year +4.0bps at 4.699%, 20-year +3.2bps at 5.204%, 30-year +2.0bps at 5.169%.THE DAY: Treasuries sold off across the curve on Thursday, led by the front end, as oil prices continued to climb amid escalating geopolitical tensions, lifting inflation expectations.The US-Iran conflict continued to escalate overnight, with fears growing that military operations could intensify further. CENTCOM announced it had completed a 12th consecutive night of strikes against Iran, targeting Iranian military assets including maritime capabilities, missile and drone storage facilities, surveillance sites and air defence assets. Reports also suggested the US used B-1 bombers for the first time since hostilities resumed. Meanwhile, reports throughout Thursday suggested President Trump is close to deciding whether to expand the campaign into something "bigger than ever before" and more aggressive than Operation Epic Fury, although no final decision has been made. Reports also continued to suggest Israel is prepared to join the operation if required, although only in response to an Iranian attack. Meanwhile, Trump announced he will hold the Houthi's responsible for attacking two Saudi Arabian ships in the Red Sea last night - potentially widening the conflict in the Middle East if more ships are struck.US data also leaned hawkish, with initial jobless claims falling sharply to just 187k, the lowest level since 1969. Oxford Economics cautioned that the unusually large decline may have been influenced by seasonal factors, but said the exceptionally low level of claims nevertheless highlights subdued layoffs and continued underlying labour-market strength. Elsewhere, the ECB decision was largely as expected, although Bloomberg subsequently reported that officials are prepared to raise rates in September.Overall, the continued rise in crude prices is adding to inflation concerns, while the sharp decline in jobless claims reinforces signs of a resilient labour market. Together, the developments strengthened the case for Fed tightening, with around 10bps now priced for next week's meeting, implying roughly a 40% probability of a 25bp hike. Meanwhile, around 38bps of tightening is priced by year-end, fully pricing one hike and assigning roughly a 52% probability of a second.SUPPLYNotes US sold USD 21bln of 10-year TIPS; Tail 2.8bps. US to sell USD 69bln 2-year notes and USD 70bln 5-year notes on July 27; to sell USD 44bln 7-year notes on July 28; to sell USD 30bln 2yr FRN on July 29th; all to settle on July 31st.. Bills US to sell USD 92bln 13-week bills and USD 79bln 26-week bills on July 27; to sell USD 95bln 6-week bills on July 28; all to settle on July 30 US sold 4-wk bills at high-rate 3.730%, B/C 2.79x; sold 8-wk bills at high-rate 3.795%, B/C 2.31x STIRS / OPERATIONS Fed Pricing: 38bps (prev. Dec 35.6bps) EFFR at 3.63% (prev. 3.63%), volumes at USD 102bln (prev. USD 106bln) on July 22nd SOFR at 3.62% (prev. 3.61%), volumes at USD 3.026tln (prev. USD 2.975tln) on July 22nd NY Fed RRP op demand at 0.90bln (prev. 0.38bln) across 6 counterparties (prev. 2) on July 23rd