For the Treasury market, this historically has been a bad week. If it happens again this year, Morgan Stanley strategists say investors should buy the dip “with both hands.” https://t.co/xtdg6HEY2h ...

Core Viewpoint - U.S. government bond yields increased in response to the unexpected resignation of French Prime Minister Sébastien Lecornu, who served for less than a month [1] Group 1 - The resignation of French Prime Minister Sébastien Lecornu has caused a ripple effect, influencing bond yields in the U.S. to rise [1]

Tokenization Adoption - Sei Network is attracting major players in tokenization [1] - Ondo Finance and Securitize, representing over 50% of the tokenized Treasury market, are choosing Sei [1] Institutional Interest - Institutions are converging on Sei as a settlement layer for global-scale markets [1] Performance Claim - Real World Assets (RWAs) move faster on Sei [1]

Group 1 - The Treasury market is currently hovering below a key level of 4.25%, but remains above the significant 4% level, indicating market stability despite inflation concerns [1][2] - Year-over-year core PCE inflation is reported at 2.9%, which is above the pre-COVID levels and indicates persistent inflationary pressures, well above the Federal Reserve's 2% target [2][3] - The Federal Reserve may reconsider aggressive easing strategies due to the persistent inflation and stable labor market, as evidenced by the tame claims data of 218,000 [3] Group 2 - The Treasury yields have increased, with a rise of seven basis points on the week for the 10-year and five basis points for the two-year, reflecting market reactions to recent economic data [4] - The dollar index has appreciated by approximately 1.6% since the Federal Reserve's easing on the 17th, indicating a strengthening dollar amidst the current economic environment [4]

Market Trends & Inflation - The Treasury market's tenure is hovering below a key level of 425 basis points (425%) [1] - Inflation remains sticky, with year-over-year core PCE inflation at 290 basis points (290%) [1][2] - Core PCE inflation is holding at slightly below 300 basis points (300%), well above pre-COVID levels, while the target is 200 basis points (200%) [2] Monetary Policy & Labor Market - The Fed should pause any aggressive easing strategy unless the labor market deteriorates [3] - Initial claims were at 218000, indicating a tame labor market [3] Treasury Market & Dollar Index - Treasury yields are up seven basis points (700%) on the week in a two-year and about five basis points (500%) in a 10-year [4] - Since the Fed's easing on the 17th, the dollar index is up about 160 basis points (160%) [4] Economic Sentiment - University of Michigan sentiment shows some deterioration [3]

Monetary Policy & Inflation Outlook - The independence of the Federal Reserve is critical for both the current and future chairs [1] - The market is pricing in a full point (100 basis points) of rate cuts by the Fed this year [1] - Inflation is primarily a fiscal and monetary phenomenon, not driven by tariffs [3] - The industry anticipates soft growth numbers will lead the Fed to ease policy, potentially finding themselves behind the curve in September [6][10] Fiscal Policy & Economic Conditions - Government spending growth has slowed significantly, from a 45% increase in the first six months of fiscal year 2021 to a 5% increase currently [4] - Money supply growth has also slowed, from 27% to 4%, compared to a 50-year average of 6-7% [5] - The industry does not expect a significant inflation surge due to the changes in fiscal and monetary policy [6] Treasury Market & Investment Strategy - The industry suggests underweighting the back end of the Treasury market, maintaining a 70% stocks, 30% bonds allocation [7] - There is pressure on the back end of the curve due to factors such as the JGB market, slowing of QE in Japan, and spending out of Germany [8] - The two-year to five-year part of the Treasury curve may represent a good investment opportunity if weak economic data emerges [9]

Supplementary Leverage Ratio (SLR) Reform - Banking agencies are proposing changes to the supplementary leverage ratio, but the proposal under consideration may not exclude treasuries from the SLR calculation [2] - The Treasury Secretary argued that excluding treasuries from SLR could boost banks' ability to intermediate in the Treasury market and potentially lower Treasury yields by 30 to 70 basis points [2] - The Fed Chairman agrees that a binding leverage ratio discourages banks from low-margin activities like Treasury market mediation, and SLR reform should encourage more mediation [3] - The Fed temporarily excluded treasuries from the SLR calculation during the Covid pandemic as an emergency measure, and the Fed is now considering a permanent measure [5] Community Reinvestment Act (CRA) - The Federal Reserve, FDIC, and OCC intend to issue a notice of proposed rulemaking to repeal the 2023 Community Reinvestment Act and replace it with the legacy CRA framework [7] - The agencies are determining whether to issue a clean rescission and replacement of the rulemaking or consider amendments to the legacy rule [8] Supervision of Novel Activities Program - Changes could be made to the Supervision of Novel Activities program to encourage innovation [9] - Vice Chair Bowman is knowledgeable and experienced in supervision and can move supervision in a healthy direction while preserving safety and soundness [9][10]

Market Anomalies - Historically, the dollar index increases when the S&P 500 declines by more than 10%, but recently the dollar decreased while the S&P 500 fell almost 20% [1] - Typically, the 10-year Treasury yield decreases following the first Federal Reserve rate cut, but this time it increased, and the yield curve is steepening [2] US Treasury Market & Debt - The US faces an unsustainable interest expense due to a $21 trillion budget deficit and persistent interest rates [3] - The average coupon on Treasuries has risen from below 2% to nearly 4% [3][4] - Maturing bonds issued in 2008, 2009, and even 2019 with coupons as low as 025% are being replaced with bonds at 425%, a 400 basis points increase [4][5] - The long-term Treasury bond is losing its status as a reliable flight to quality asset, not responding as expected to lower interest rates or the current 25% inflation rate [5] Inflation Outlook - Near-term inflation is likely to rise, as the cumulative headline CPI rolling off from a year ago was 01%, while the most recent CPI was 018% [6] US National Debt Concerns - The US national debt is rapidly approaching $37 trillion, requiring innovative solutions [7]