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TREASURY WRAP: T-NOTE FUTURES (M6) SETTLE 1 TICKER LOWER 110-00

The T-note futures settled lower due to mixed influences; hotter-than-expected PPI data initially pressured Treasuries, while lower crude prices later provided some support.

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TREASURY WRAP: T-NOTE FUTURES (M6) SETTLE 1 TICKER LOWER 110-00

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T-notes saw choppy trade on Wednesday, with hotter-than-expected PPI data initially weighing on Treasuries before lower crude prices helped support the market later in the session. At settlement, 2-year -1.5bps at 3.979%, 3-year -1.0bps at 4.017%, 5-year -0.7bps at 4.119%, 7-year -0.5bps at 4.287%, 10-year +1.0bps at 4.473%, 20-year +1.3bps at 5.036%, 30-year +1.6bps at 5.043%.

THE DAY: T-notes were little changed overall, although there was notable volatility following the US PPI report. The data came in hotter than expected across the board and reinforced Tuesday’s CPI release, particularly with another firm services inflation print, adding to concerns that inflation pressures are becoming more broad-based beyond just higher energy prices.

Treasuries initially sold off in response to the data, although the move quickly pared before pressure resumed later in the session, briefly taking the 10-year future below the 110-00 level.

However, softer crude prices helped lift Treasuries from session lows, with energy markets continuing to play a key role in driving rates price action. 

The geopolitical backdrop was somewhat calmer, with President Trump arriving in Beijing for the US/China summit, seemingly delaying any major decisions regarding Iran until after the visit concludes.

Away from inflation data and geopolitics, the 30-year bond auction was also in focus and came in on the soft side despite attractive outright yields and a lower volatility backdrop, suggesting long-end demand remains cautious amid persistent inflation concerns.

SUPPLY

Notes

Bills

  • US sold 17-week bills at a high rate of 3.615%, B/C 3.20x
  • US to sell USD 95bln of 8-week bills (prev. 85bln) and USD 100bln of 4-week bills (prev. 90bln) on May 14th; all to settle May 19th

STIRS/OPERATIONS

  • Fed Pricing: Dec 10.2bps (prev. Dec 10.7bps)
  • EFFR at 3.63% (prev. 3.63%), volumes at USD 118bln (prev. USD 114bln) on May 12th
  • SOFR at 3.60% (prev. 3.60%), volumes at USD 3.097tln (prev. USD 3.09tln) on May 12th
  • NY Fed rrp op demand at USD 3.609bln (prev. 0.110bln) across 5 counterparties (prev. 1)
Context

This volatility underscores ongoing inflation concerns, especially as broader price pressures are observed beyond energy costs, potentially impacting Fed policy and interest rate expectations moving forward.

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