UBS mid-day rates note:

Treasuries are giving back their post-PCE gains as markets refocus on the strength of US growth, with 10-year yields back above 5.25% and 30-year yields north of 5.6%. While core PCE came in softer at 0.2% m/m after rounding, a sizable upward revision to Q2 GDP reinforced the view that the economy is running materially stronger than the Fed anticipated heading into the next few meetings.

The initial reaction saw a 15.3k FV block buyer step in following the data, but that move has since been fully retraced as rallies continue to find sellers. Even so, FOMC meeting gaps remain lower by 8-9bp across the curve, helped by Williams' comments on Tuesday. October pricing has fallen roughly 9bp since yesterday and now implies only 8.5bp of additional tightening.

Swap spreads are modestly tighter, led by the belly, although they have widened off the lows as paying interest tied to convexity hedging, or anticipation of it, continues to provide support. Positioning remains a focus, with many fast-money accounts still running net-long belly spread exposure. The desk has also seen demand for front-end spread widening trades and interest in TU/FV spread-curve steepeners.

Curve steepening remains a dominant theme. The spot curve is outperforming forwards, prompting interest from fast-money accounts in leveraged forward steepeners on expectations that forwards will catch up. In cash Treasuries, buying has been concentrated in the five-year sector, while the month-end extension of 0.07 years is broadly in line with historical averages.

Inflation markets are firmer in the front end alongside the rise in oil, although some accounts have looked to fade the move. Breakevens are wider overall, with buying interest in five-year inflation products, while 30-year breakevens have attracted sellers around the 230bp area.