Short Rates Desk
Mon, Aug 10, 2026

Notes for Mon, Aug 10, 2026

Morning brief

· generated 07:06 ET

Stay in the 2s10s steepener into CPI; the weekend gave us nothing to cut it on

Payrolls at minus 23,000 gut the September hike case, the Hormuz talks are de-escalating, and funding is calm. Steepener holds.

Curve

The decisive input behind the steepener is still Friday's payrolls: nonfarm employment fell 23,000 against a consensus near 80,000[1], which guts the case for a September hike and anchors the front end. We hold the 2s10s steepener. The spread sat at 46bp Friday[2], up from 44bp Thursday[3], with 2Y at 4.25%[4] and 10Y at 4.69%[5]; we add on any retest of the low-40s. The back end is a weaker rally partner here: the NY Fed's 10-year term-premium estimate stood at 87bp on July 31[6], and that premium plus coupon supply lets a dovish front end steepen the curve while the long end lags.

Both break tests from the 8/7 close survived the weekend. The first, Hormuz breaking to open conflict with a whole-curve haven rally, ran the other way, and we take it below. The second, a hot CPI that reverses the front end, is unresolved because CPI has not printed; it stays our live falsifier. We're wrong if this week's CPI runs hot and 2Y sells off through the payrolls move, and we cut the steepener there.

Payrolls

The establishment survey lost 23,000 jobs in July, and the May and June revisions took another 103,000 out[7]. Average hourly earnings were nearly flat on the month and up 3.2% year over year, the softest since 2021[8]. Private payrolls rose 30,000, masked by a 53,000 drop in government[9]. The 4.1% unemployment rate[10] is the one soft-looking positive, and we fade it: it fell as the participation rate slid to 61.4%[11] and the labor force shrank. Softening wages alongside an outright hiring contraction is what the Fed weights, and it reads dovish into Jackson Hole.

Hormuz

The weekend's live story is the Strait of Hormuz. Iran and Oman have agreed coordinates for a safe shipping route[12] and both signaled a deal is close, though Tehran is warning traffic will not normalize immediately[13], and the US reimposed its naval blockade in late July after renewed attacks on shipping[14]. Vance said the aim is to restore pre-conflict Gulf oil and gas volumes[15]. For rates this is the benign path: a credible off-ramp pulls the oil-driven inflation tail lower and keeps the front end bid. The escalation that would trip the steepener, mines or seizures shutting the strait with a flight-to-quality bid across the curve, is not this morning's base case.

Funding

Funding is unremarkable and the ample-reserves assumption carries. SOFR fixed 3.65% Thursday[16], level with IORB at 3.65%[17], and EFFR sat at 3.63%[18]; no scarcity signal. Bank reserves rose about $9B on the week to $2.99T[19] while the TGA drew down roughly $41B[20], both adding liquidity. We keep the collateral book unchanged.

Risks

Two inputs argue against pressing the front-end leg. ISM manufacturing jumped to 55.6 on an orders revival[21]; a genuine cycle turn there supports higher-for-longer and caps how far the front end can rally. And Warsh is reported willing to hike in September if inflation surprises to the upside[22], the exact tail our CPI break test covers. Neither is confirmed, so we hold the steepener at current size and let this week's CPI print decide whether we add or cut.

Sources read

8 sources read

  • Commentary items: 8

Citations

  1. [1]nonfarm employment fell 23,000 against a consensus near 80,000 (US shed 23K jobs in July 2026 vs 80K forecast increase) — Web · tradingeconomics.com
  2. [2]The spread sat at 46bp Friday (0.46) — FRED T10Y2Y · Aug 7, 2026
  3. [3]up from 44bp Thursday (0.44) — FRED T10Y2Y · Aug 6, 2026
  4. [4]2Y at 4.25% (4.25) — FRED DGS2 · Aug 6, 2026
  5. [5]10Y at 4.69% (4.69) — FRED DGS10 · Aug 6, 2026
  6. [6]the NY Fed's 10-year term-premium estimate stood at 87bp on July 31 (0.8681) — FRED THREEFYTP10 · Jul 31, 2026
  7. [7]the May and June revisions took another 103,000 out (May and June combined revised down 103,000) — Web · bls.gov
  8. [8]up 3.2% year over year, the softest since 2021 (AHE +3.2% y/y, lowest since May 2021; pay nearly flat on the month) — Web · cnbc.com
  9. [9]Private payrolls rose 30,000, masked by a 53,000 drop in government (private payrolls +30,000; government jobs -53,000) — Web · cnbc.com
  10. [10]The 4.1% unemployment rate (unemployment rate 4.1%) — Web · cnbc.com
  11. [11]the participation rate slid to 61.4% (labor force participation rate 61.4%) — Web · bls.gov
  12. [12]Iran and Oman have agreed coordinates for a safe shipping route (Iran and Oman agreed geographic coordinates for a safe Hormuz shipping route) — Web · cnn.com
  13. [13]Tehran is warning traffic will not normalize immediately (Tehran says the deal would not reopen the waterway immediately) — Web · cnn.com
  14. [14]the US reimposed its naval blockade in late July after renewed attacks on shipping (As of early August 2026 US reimposed naval blockade after renewed attacks on commercial vessels) — Web · congress.gov
  15. [15]Vance said the aim is to restore pre-conflict Gulf oil and gas volumes (Vance: expect the same amount of Gulf oil and gas as before the conflict) — Web · cnn.com
  16. [16]SOFR fixed 3.65% Thursday (3.65000%) — NY Fed SOFR · Aug 6, 2026
  17. [17]IORB at 3.65% (3.65) — FRED IORB · Aug 10, 2026
  18. [18]EFFR sat at 3.63% (3.63000%) — NY Fed EFFR · Aug 6, 2026
  19. [19]Bank reserves rose about $9B on the week to $2.99T (+8,779M w/w) — FRED WRESBAL · Aug 5, 2026
  20. [20]the TGA drew down roughly $41B (-41,117M w/w) — Treasury General Account · Aug 5, 2026
  21. [21]ISM manufacturing jumped to 55.6 on an orders revival (ISM's jump to 55.6 on order flow revival) — Commentary · capitalwars.substack.com
  22. [22]Warsh is reported willing to hike in September if inflation surprises to the upside (Warsh's reported willingness to raise rates in September if inflation surprises upside) — Commentary · zerohedge.com

Generated by Short Rates Desk. Informational only. Not investment advice.

Close brief

· generated 16:19 ET

Cook lowers the September hike bar; we hold the 2s10s steepener into Wednesday's CPI

A hawkish Cook signal pressed the front end, but the CPI falsifier is unresolved and long-end supply keeps the steepener on.

Stance

We keep the 2s10s steepener. The falsifier we put on record last week, a hot CPI that reverses the front end, is unresolved: CPI prints Wednesday, and 2Y has not sold off through its post-payrolls move on a hot number, so the break test stays live rather than tripped. 2s10s sat at 46bp on August 7[1], wider than 35bp on July 28[2], so the trade carried while we waited. Governor Cook lowering the bar for a near-term hike[3] is the one new fact that lifts the odds the CPI break test trips, and we treat it as adjacent to the trade rather than a reason to cut today.

Front end and Cook

Cook's message lowers the hurdle for a September hike[4], and in a week with no first-tier data before Wednesday the front end trades off guidance interpretation. That cuts against the move the market made after Friday's payrolls, which printed headline -23k with roughly -103k in revisions[5] and pushed pricing toward a September cut, with desk consensus near 44% cut odds[6]. Tchir frames the September hike as sub-50% priced[7], down from near-certain two weeks ago. We size the steepener off the long end, not the front: 2Y at 4.25% on August 6[8] is caught between payrolls dovishness and Cook, and we will not rest the trade's P&L on which wins before CPI.

Long end and supply

The long end is where we want the risk. Brooks flags 10y10y forwards at 20-year highs and a US deficit near 7% of GDP outside recession[9], a term-premium story that cheapens the back end structurally. Supply reinforces it: Nvidia's reported $500bn off-balance-sheet SPV for the AI build-out[10] and Intel's $15bn equity offering[11] point to a capex cycle leaning on debt and equity issuance into next year. 10Y closed at 4.69%[12] and 30Y at 5.22% on August 6[13], and we read continued long-end cheapening as the reliable leg of the steepener whichever way CPI resolves the front.

Funding

Funding is unremarkable, so the ample-reserves assumption behind the trade carries. SOFR printed 3.62% on August 7[14] against IORB at 3.65%[15], so the secured rate is fixing three basis points below the administered floor. RRP take-up was $1.45bn[16], near the lows, and GCF Treasury repo was 3.66%[17]. Reserves stood at $2.99trln on August 5[18], up about $9bn on the week[19], while TGA fell to $929bn[20] from $970bn a week earlier[21]. One issue-specific move: the Feb 18 '27 bill (912797TV9) drew a 131.7bp SOMA lending fee on August 10[22] against the 5bp program minimum, up from single digits last week. That is collateral demand for a single CUSIP, and we keep it separate from the duration call.

Risks

A hot CPI Wednesday that lifts 2Y back through its post-payrolls level is the clean falsifier, and we cut the steepener there. Amarnath's flagged CPI-PCE wedge, with CPI running hotter than the PCE tracker the Fed watches[23], raises that risk. Hormuz is the other side: Brent near $75 with Iran consolidating a hardline stance on the strait[24] keeps a stagflationary oil shock live, and that would cheapen the long end on term premium before it reaches the front. We are wrong on the funding assumption if SOFR starts fixing above IORB with RRP take-up already near zero, and nothing this week points that way. We re-baseline the trade if Cook's line gets echoed by the center of the committee and 2Y gaps before Wednesday.

Sources read

8 sources read

  • Commentary items: 8

Citations

  1. [1]2s10s sat at 46bp on August 7 (0.46) — FRED T10Y2Y · Aug 7, 2026
  2. [2]wider than 35bp on July 28 (0.35) — FRED T10Y2Y · Jul 28, 2026
  3. [3]Governor Cook lowering the bar for a near-term hike (Cook signaling near-term hike with low bar, front end re-pricing higher likely if speech gets traction; watch 2y for the repricing magnitude) — Commentary · employamerica.org
  4. [4]lowers the hurdle for a September hike (if Cook is effectively lowering the hurdle for a near-term hike, 2y/OIS should cheapen in a no-data window as guidance gets marked hawkish) — Commentary · employamerica.org
  5. [5]headline -23k with roughly -103k in revisions (after Friday's dovish payrolls print (headline -23k, revisions -103k)) — Commentary · zerohedge.com
  6. [6]desk consensus near 44% cut odds (the desk already pricing 44% September cut odds after Friday's dovish payrolls print) — Commentary · zerohedge.com
  7. [7]Tchir frames the September hike as sub-50% priced (Tchir argues Sept hike is now sub-50% priced (down from full hike odds ~2 weeks ago) on weak labor data) — Commentary · zerohedge.com
  8. [8]2Y at 4.25% on August 6 (4.25) — FRED DGS2 · Aug 6, 2026
  9. [9]Brooks flags 10y10y forwards at 20-year highs and a US deficit near 7% of GDP outside recession (10y10y forwards at 20-year highs, US deficit at 7% of GDP in non-crisis period) — Commentary · robinjbrooks.substack.com
  10. [10]Nvidia's reported $500bn off-balance-sheet SPV for the AI build-out (Nvidia and hyperscalers financing each other through SPV structures to fund $8tn AI build-out; the $500bn off-balance sheet deal) — Commentary · zerohedge.com
  11. [11]Intel's $15bn equity offering (Intel announced a $15 billion underwritten public offering to fund AI compute) — Commentary · zerohedge.com
  12. [12]10Y closed at 4.69% (4.69) — FRED DGS10 · Aug 6, 2026
  13. [13]30Y at 5.22% on August 6 (5.22) — FRED DGS30 · Aug 6, 2026
  14. [14]SOFR printed 3.62% on August 7 (3.62000%) — NY Fed SOFR · Aug 7, 2026
  15. [15]IORB at 3.65% (3.65000) — FRED IORB · Aug 10, 2026
  16. [16]RRP take-up was $1.45bn (1.45) — FRED RRPONTSYD · Aug 7, 2026
  17. [17]GCF Treasury repo was 3.66% (UST 3.663) — DTCC GCF repo · Aug 7, 2026
  18. [18]Reserves stood at $2.99trln on August 5 (2,993,349M) — FRED WRESBAL · Aug 5, 2026
  19. [19]up about $9bn on the week (+8,779M w/w) — FRED WRESBAL · Aug 5, 2026
  20. [20]TGA fell to $929bn (929,325M) — Treasury General Account · Aug 5, 2026
  21. [21]$970bn a week earlier (970,442M) — Treasury General Account · Jul 29, 2026
  22. [22]131.7bp SOMA lending fee on August 10 (131.7 bp) — Observation · observation:seclend_observations:912797TV9:2026-08-10
  23. [23]Amarnath's flagged CPI-PCE wedge, with CPI running hotter than the PCE tracker the Fed watches (Amarnath flags an inverted CPI-PCE wedge in July data, suggesting CPI may print hotter than the PCE tracker the Fed watches) — Commentary · employamerica.org
  24. [24]Brent near $75 with Iran consolidating a hardline stance on the strait (Hormuz closure risk is hardening... Iran's promotion of a hardline security chief... Oil at $75) — Commentary · zerohedge.com

Generated by Short Rates Desk. Informational only. Not investment advice.