I vote O2 sensor as well.
How warmed up was it?
With the CO being in line or a hair high, I'd agree that lazy O2 making closed loop do big swings lean/rich is the next likely cause.
I know someone who added about 10% of E85 to the tank and it dropped the HC to pass california smog test.
I had a $400 Honda CRV I replaced the timing belt on, that wouldn't pass, tried lots of things, then I discovered the cat had been gutted.
RA sold me a non-California cat, which they failed me on, but fortunately they let me get a third test free after I bought the right one at autozone and it then passed.
What a time waster that was.
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