Short Rates Desk
Tue, Aug 11, 2026

Notes for Tue, Aug 11, 2026

Morning brief

· generated 07:06 ET

We carry the 2s10s steepener into Wednesday's CPI; the front end didn't move overnight

Both break tests held: SOFR still fixes below IORB and 2Y hasn't cleared its post-payrolls level. CPI Wednesday is the falsifier.

Rates

The 2s10s spread widened to 47bp Monday[1] from 46bp Friday[2] while front-end yields held flat, which is the configuration we want for the steepener, so we carry it into Wednesday's CPI. Our clean falsifier, a hot CPI that lifts 2Y back through its post-payrolls level, is live rather than tripped: the print lands Wednesday, and 2Y last closed 4.19% Friday[3] with nothing since to clear that level. We hold and re-check the trade against the number.

Funding

Funding is soft, so the ample-reserves assumption behind the steepener carries. SOFR fixed 3.62% Friday[4], three basis points under the 3.65% IORB[5], and overnight RRP take-up ran near $1.0bn Monday[6]. Cash at the facility near zero with SOFR below IORB reads as ample reserves, so the funding break test, SOFR fixing above IORB with RRP drained, did not trip. One issue cuts against the calm: the Feb-18-27 bill drew a 131.7bp SOMA lending fee Monday[7] against the 5bp floor, up from 29.4bp Friday[8]. That is issue-specific collateral demand, and we keep it separate from the duration call.

Credit

The one genuinely new fact overnight is Nvidia's $500bn off-balance-sheet SPV with Apollo, Blackstone, BlackRock, Brookfield, Goldman, and KKR[9], routing AI infrastructure capex through private credit. We read it as growth-supportive and consistent with the term-premium leg of the steepener: more committed capex, more issuance to fund it, more reason for the long end to carry a premium. Credit spreads are what we watch here, and they are calm. High-yield spreads sat at 270bp Friday[10] and investment-grade at 78bp[11], both tight, so cash credit does not yet corroborate a wider-spread repricing. Amarnath's read that roughly 69% of the year-over-year LFPR decline is mechanical[12] rather than cyclical reinforces the front-end anchor: no hidden slack for the Fed to chase, which keeps 2Y policy-driven.

Risks

CPI Wednesday is the swing. A hot print that lifts 2Y back through its post-payrolls level trips the falsifier, and we cut the steepener there. Skanda reads Cook's recent speech as moving the Fed's reaction function in a hawkish direction[13], which raises the odds a hot number reprices the front end; we treat that as adjacent to the trade, not a reason to cut early. We're wrong if CPI runs hot and 2Y sells off with it. The trade assumes Treasury holds its bill-issuance pace, with nothing in the calendar flagging a coupon upsize this week; if that changes, we re-baseline. And we act on the growth-supportive AI read if credit gaps wider, so high-yield spreads breaking out from here is the trigger to cut the term-premium leg.

Sources read

8 sources read

  • Commentary items: 8

Sources read

8 sources read

  • Commentary items: 8

Citations

  1. [1]widened to 47bp Monday (0.47000000) — FRED T10Y2Y · Aug 10, 2026
  2. [2]from 46bp Friday (0.46000000) — FRED T10Y2Y · Aug 7, 2026
  3. [3]2Y last closed 4.19% Friday (4.19000000) — FRED DGS2 · Aug 7, 2026
  4. [4]SOFR fixed 3.62% Friday (3.62000%) — NY Fed SOFR · Aug 7, 2026
  5. [5]the 3.65% IORB (3.65000000) — FRED IORB · Aug 11, 2026
  6. [6]overnight RRP take-up ran near $1.0bn Monday (0.97500000) — FRED RRPONTSYD · Aug 10, 2026
  7. [7]131.7bp SOMA lending fee Monday (131.7 bp) — Observation · observation:seclend_observations:912797TV9:2026-08-10
  8. [8]up from 29.4bp Friday (29.4 bp) — Observation · observation:seclend_observations:912797TV9:2026-08-07
  9. [9]Nvidia's $500bn off-balance-sheet SPV with Apollo, Blackstone, BlackRock, Brookfield, Goldman, and KKR (Nvidia's $500bn off-balance-sheet SPV consortium deal with Apollo, Blackstone, BlackRock, Brookfield, Goldman, and KKR signals credit markets are now pricing AI infrastructure capex) — Commentary · zerohedge.com
  10. [10]High-yield spreads sat at 270bp Friday (2.70000000) — FRED BAMLH0A0HYM2 · Aug 7, 2026
  11. [11]investment-grade at 78bp (0.78000000) — FRED BAMLC0A0CM · Aug 7, 2026
  12. [12]roughly 69% of the year-over-year LFPR decline is mechanical (~69% of the 80bp year-over-year LFPR decline is mechanical) — Commentary · employamerica.org
  13. [13]moving the Fed's reaction function in a hawkish direction (Cook's speech from last week confirms the Fed reaction function is moving in a hawkish direction) — Commentary · employamerica.org

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

Close brief

· generated 16:19 ET

We keep the 2s10s steepener; today's session left both break tests intact

Funding stayed soft and the front end held while the long end sits off its late-July highs; Wednesday's CPI is the gate.

Positioning

We carry the 2s10s steepener into Wednesday's CPI, and both break tests on record held. The funding test, SOFR fixing above IORB with the RRP drained, did not trip: SOFR fixed 3.63% Monday[1] against IORB at 3.65%[2], a 2bp gap, and RRP take-up held at $0.975B[3] rather than emptying. The rate test held too: our post-payrolls line on 2Y is 4.19%[4], set Friday, and no print since has cleared it, so CPI is the live gate rather than a tripped one. We're wrong if tomorrow's print runs hot and lifts 2Y back through 4.19%. The trade assumes Treasury holds its bill-issuance pace, and nothing in the calendar flags a coupon upsize; if that changes we re-baseline.

Funding

Funding stayed soft. GCF Treasury repo printed 3.668% Monday[5] and EFFR held 3.63%[6], with SOFR below IORB confirming the ample-reserves read behind the steepener. One bill is rich: the Feb 18, 2027 issue drew a 153.8bp SOMA lending fee Monday versus the 5bp minimum[7], up from 131.7bp the day prior[8], which is issue-specific collateral demand rather than a broad squeeze. TGA closed at $929.3B on Aug 5[9], down $41.1B w/w[10]; the current-day snapshot has it near $954bln, roughly $4bln above target, with reserve balances up $8.8bln[11]. Cash is ample and the assumption carries.

Supply and duration

Monday's 3Y auction cleared well: it stopped through, a 2.712 bid-to-cover, and dealers took just 11.7%[12], one of the lowest allocations this year. Real-money demand showed up, but the internals reflect curve repricing already done since mid-July rather than a forecast of a tame CPI[13], so watch what 2Y does after the print, not the auction. The long end has come off its late-July highs, with 10Y at 4.65% Friday[14] against the 4.75% close on Jul 31[15], and 30Y at 5.19%[16] against 5.27%[17]. We read that as consolidation.

Oil tail

The Hormuz picture hardened. Only six commodity vessels transited the strait Monday[18], and per BofA traffic needs to recover to roughly 80-100 ships a day to stabilize energy markets against the 5-10 now passing[19]. Iran's command reshuffle toward hardliners points to a multi-month blockade[20] rather than a bargaining pause. The channel to the front end runs both ways: energy pass-through argues for higher front-end rates on inflation, while a wider Gulf conflict bids duration on flight-to-quality, which is why we hold small paid optionality rather than an outright front-end payer[21]. Tomorrow's July CPI won't carry this shock in any case.

Sources read

8 sources read

  • Commentary items: 8

Citations

  1. [1]SOFR fixed 3.63% Monday (3.63000%) — NY Fed SOFR · Aug 10, 2026
  2. [2]IORB at 3.65% (3.65000000) — FRED IORB · Aug 11, 2026
  3. [3]RRP take-up held at $0.975B (0.975) — FRED RRPONTSYD · Aug 10, 2026
  4. [4]our post-payrolls line on 2Y is 4.19% (4.19) — FRED DGS2 · Aug 7, 2026
  5. [5]GCF Treasury repo printed 3.668% Monday (UST 3.66800) — DTCC GCF repo · Aug 10, 2026
  6. [6]EFFR held 3.63% (3.63000%) — NY Fed EFFR · Aug 10, 2026
  7. [7]153.8bp SOMA lending fee Monday versus the 5bp minimum (912797TV9 (B 02/18/27) at 153.8 bp) — Observation · observation:seclend_observations:912797TV9:2026-08-11
  8. [8]up from 131.7bp the day prior (912797TV9 (B 02/18/27) at 131.7 bp) — Observation · observation:seclend_observations:912797TV9:2026-08-10
  9. [9]TGA closed at $929.3B on Aug 5 (929325M) — Treasury General Account · Aug 5, 2026
  10. [10]down $41.1B w/w (-41,117M w/w) — Treasury General Account · Aug 5, 2026
  11. [11]the current-day snapshot has it near $954bln, roughly $4bln above target, with reserve balances up $8.8bln (TGA $4bln above target at $954bln, reserve balances up $8.8bln) — Commentary · conks.plumbing
  12. [12]it stopped through, a 2.712 bid-to-cover, and dealers took just 11.7% (stopped through the When Issued level by 0.5 bps... Bid-to-cover ratio of 2.712... Dealers left holding 11.7%) — Commentary · zerohedge.com
  13. [13]the internals reflect curve repricing already done since mid-July rather than a forecast of a tame CPI (reflect curve repricing already priced in since mid-July, not a forecast of tame CPI) — Commentary · zerohedge.com
  14. [14]10Y at 4.65% Friday (4.65000000) — FRED DGS10 · Aug 7, 2026
  15. [15]the 4.75% close on Jul 31 (4.75000000) — FRED DGS10 · Jul 31, 2026
  16. [16]30Y at 5.19% (5.19000000) — FRED DGS30 · Aug 7, 2026
  17. [17]against 5.27% (5.27000000) — FRED DGS30 · Jul 31, 2026
  18. [18]Only six commodity vessels transited the strait Monday (on Monday, only six commodity vessels transited the Strait of Hormuz in either direction) — Commentary · zerohedge.com
  19. [19]traffic needs to recover to roughly 80-100 ships a day to stabilize energy markets against the 5-10 now passing (Traffic at Hormuz needs to recover to nearly pre-war levels of around 80 to 100 ships per day just to stabilize energy markets) — Commentary · zerohedge.com
  20. [20]Iran's command reshuffle toward hardliners points to a multi-month blockade (Iran has undergone a significant military reshuffle of top command leadership, appointing hardliners) — Commentary · zerohedge.com
  21. [21]small paid optionality rather than an outright front-end payer (Better expression is small paid optionality or energy-linked inflation risk, not a clean cuts-repricing trade yet) — Commentary · zerohedge.com

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