TREASURY WRAP: T-NOTE FUTURES (M5) SETTLE 4+ TICKS HIGHER AT 109-19

T-notes bull steepen as falling crude prices ease inflation concerns and reduce Fed hike pricing. At settlement, 2-year -3.7bps at 4.047%, 3-year -3.4bps at 4.098%, 5-year -3.2bps at 4.184%, 7-year -2.7bps at 4.324%, 10-year -2.0bps at 4.473%, 20-year -1.9bps at 4.980%, 30-year -1.5bps at 4.977%,

THE DAY: T-notes rallied across the curve on Thursday, once again taking direction from energy markets. Crude benchmarks declined throughout the session amid ongoing mediation efforts aimed at brokering a US-Iran peace deal following recent flare-ups and retaliatory strikes.

Oil prices came under additional pressure after President Trump, in a Truth Social post criticised Republicans and Democrats who voted against his war powers, and described negotiations with Iran as being in their final stages. The comments helped reinforce optimism around a potential deal and weighed on crude throughout the session, supporting Treasuries.

The decline in oil prices helped ease inflation concerns and prompted traders to pare Fed hike expectations, resulting in a bull steepening move in the Treasury curve. Front-end yields led the decline, while longer-dated maturities were comparatively more stable.

Fed speakers largely maintained a cautious stance. Daly reiterated that policy is in a good place and that the Fed is prepared to respond in either direction as the outlook evolves. Schmid struck a more hawkish tone, questioning whether patience remains appropriate and suggesting the Fed may ultimately need to consider higher rates if inflation does not move back towards target.

Economic data once again took a back seat. Jobless claims rose above expectations, and Challenger layoffs accelerated from the prior month, although the Revelio Labs payrolls estimate pointed to stronger hiring ahead of Friday's official employment report. Elsewhere, Q1 productivity and unit labour costs were both revised lower.

Attention now turns to Friday's nonfarm payrolls report, while geopolitics and crude price swings remain the dominant drivers of Treasury price action ahead of next week's supply slate.

SUPPLY

Notes

• US Treasury to sell USD 58bln of 3-year notes on June 9th, USD 39bln of 10-year notes on June 10th and USD 22bln of 30-year bonds on June 11th

Bills

• US sold 4-wk bills at high-rate 3.615%, B/C 3.07x; sells 8-wk bills at high-rate 3.610%, B/C 3.20x
• US to sell USD 65bln of 6-week bills on June 9th
• US to sell USD 89bln of 13-week bills and 77bln of 26-week bills on June 8th
• US to sell USD 590bln of 52-week bills on June 9th.

STIRS/OPERATIONS

• Fed Pricing: 16.3bps (prev. Dec 20.2bps)
• EFFR at 3.62% (prev. 3.62%), volumes at USD 119bln (prev. USD 133bln) on June 3rd
• SOFR at 3.61% (prev. 3.63%), volumes at USD 3.098tln (prev. USD 3.148tln) on June 3rd
• NY Fed RRP op demand at 1.12bln (prev. 2.06bln) across 18 counterparties (prev. 35) on June 4th
• NY Fed T-Bill Purchases (1-4 month): Accepts USD 6.58bln of USD 46.33bln offered; Offer-to-cover 7.04x
• Treasury Buyback (Cash management, 1mth to 2-year, Max USD 12.5bln); Accepts USD 12.5bln of USD 41.662bln offered; Offer to cover 3.33x