TREASURY WRAP: T-NOTE FUTURES (M6) SETTLE 15 TICKS LOWER AT 110-05+

Treasuries sold off across the curve on Monday, with yields rising as geopolitical tensions escalated and oil prices surged. At settlement, 2-year +7.6bps at 3.956%, 3-year +7.5bps at 3.978%, 5-year +7.2bps at 4.086%, 7-year +6.7bps at 4.261%, 10-year +6.6bps at 4.438%, 20-year +6.3bps at 5.017%, 30-year +5.8bps at 5.019%.

THE DAY: T-notes came under pressure throughout the session as crude rallied sharply amid heightened geopolitical tensions in the Middle East. Reports suggested US and Iran exchanged fire on vessels in the Strait of Hormuz, while Iran launched a wave of missiles and drones targeting the UAE, including the Fujairah energy facility. The escalation drove energy prices higher, lifting inflation expectations and weighing on Treasuries across the curve. On the Fed, Williams noted he still expects rate cuts eventually and does not currently see a need to consider hikes, although his comments had little impact on Treasury price action, the dollar saw a bout of brief selling. Attention also turned to the Treasury’s latest financing estimates, which showed an upward revision to borrowing needs. The Treasury now expects to borrow USD 189bln in Q2 (vs prev. USD 109bln), while maintaining an end-June cash balance target of USD 900bln. For Q3, borrowing is projected at USD 671bln, with an end-September cash balance of USD 950bln. The Treasury also confirmed it borrowed USD 577bln in Q1, with an end-quarter cash balance of USD 893bln.

SUPPLY

Bills

• US sold 3-month bills at a high rate of 3.610%, B/C 2.76x; sold 6-month bills at high rate 3.610%, B/C 2.79x
• US to sell USD 75bln of 6-week bills on May 5th; all to settle on May 7th

STIRS/OPERATIONS

• Fed Pricing: June +1.1bps (prev. -0.4bps), July -0.7bps (prev. -1.2bps), Sept +0.3bps (prev. -2.3bps), Dec +8.7bps (prev. +0.7bps)
• NY Fed RRP op demand at 0.62bln (prev. 0.61bln) across 11 counterparties (prev. 5) on May 4th
• SOFR at 3.64% (prev. 3.66%), volumes at USD 3.15tln (prev. USD 3.275tln) on May 1st
• NY Fed RRP op demand at 0.62bln (prev. 0.61bln) across 11 counterparties (prev. 5) on May 4th