TREASURY WRAP: T-NOTE FUTURES (M6) SETTLE 11 TICKS LOWER AT 110-13

T-notes were lower across the curve on Monday, with the front-end underperforming as oil prices rallied after President Trump rejected Iran’s response to the US proposal. At settlement, 2-year +5.6bps at 3.945%, 3-year +5.4bps at 3.968%, 5-year +5.8bps at 4.064%, 7-year +5.2bps at 4.233%, 10-year +4.8bps at 4.408%, 20-year +4.4bps at 4.972%, 30-year +4.2bps at 4.982%.

THE DAY: There was no major US data or Fed speak, with market focus remaining firmly on geopolitics. The key development over the weekend was President Trump rejecting Iran’s response to the latest US proposal aimed at ending the war.

The news lifted crude prices, weighing on Treasuries and pushing yields higher across the curve, particularly in the front-end as rising energy prices boosted inflation expectations and drove a bear flattening move.

Treasuries settled near session lows despite volatile crude price action throughout the day. Reports noted Trump is set to meet with his national security team to discuss the next steps regarding Iran, including the potential resumption of military operations. Meanwhile, Iran warned it is prepared to respond to any aggression and remains open to “all options”, keeping geopolitical tensions elevated.

Away from geopolitics, the US Treasury’s 3-year note auction was weak, ahead of the 10-year and 30-year supply on Tuesday and Wednesday, respectively. Attention this week also turns to key inflation data, with US CPI on Tuesday (preview here) and PPI due before Retail Sales on Thursday.

• US sold USD 58bln of 3-year notes; Tail 0.6bps
• US to sell USD 58bln of 3-year notes on 11th May, USD 42bln of 10-year notes on 12th May and USD 25bln of 30-year bonds on 13th May

• US sold 3-month bills at high-rate 3.610%, B/C 2.86x; sold 6-month bills at high-rate 3.615%, B/C 2.91x
• US to sell USD 80bln of 6-week bills and USD 50bln of 52-week bills on May 12th; all to settle May 14th

• Fed Pricing: Dec +6.1bps (prev. +2.9bps)
• EFFR at 3.63% (prev. 3.63%), volumes at USD 123bln (prev. USD 119bln) on May 8th
• SOFR at 3.60% (prev. 3.60%), volumes at USD 3.087tln (prev. USD 3.106tln) on May 8th
• NY Fed RRP op demand at 1.13bln (prev. 0.79bln) across 7 counterparties (prev. 5) on May 11th