TREASURY WRAP: T-NOTE FUTURES (M6) SETTLE 16+ TICKS LOWER AT 109-02+

T-notes bear flatten on stellar US jobs report as traders boost Fed rate hike bets. At settlement, 2-year +11.7bps at 4.162%, 3-year +11.4bps at 4.213%, 5-year +9.5bps at 4.281%, 7-year +8.2bps at 4.409%, 10-year +6.7bps at 4.542%, 20-year +4.5bps at 5.026%, 30-year +3.0bps at 5.008%.

THE DAY: T-notes were sold across the curve on Friday, with the front-end leading the move lower and the yield curve bear flattening. The rise in yields came despite softer oil prices, with the primary driver of the session being the US nonfarm payrolls report—a welcome change after Treasury markets have spent much of the recent months taking direction from energy prices.

The US economy added 172k jobs in May, comfortably above the 85k consensus expectation. April payrolls were revised higher to 179k from 115k, while March was revised up by 28k to 214k. The report reinforces the Fed's recent assessment that labour market conditions have stabilised. Some may argue the 70k gain in leisure and hospitality employment was boosted by World Cup-related hiring, but even excluding that component the report still points to a healthy jobs market. The unemployment rate was unchanged at 4.3%, providing further evidence of labour market resilience.

The data supports the view held by many FOMC participants that inflation remains the more pressing challenge. Money markets are now fully pricing one 25bp rate hike in 2026, compared with around 16bps of tightening priced before the report. By October, markets are assigning a roughly 64% probability of a 25bp hike.The combination of resilient labour market data and recent upside inflation surprises strengthens the case for removing the easing bias at the next FOMC meeting, which will be the first chaired by Warsh, with Powell remaining on the Board of Governors.

Elsewhere, the geopolitical backdrop was more constructive. Axios reported that only narrow gaps remain between the US and Iran, while mixed reporting continued regarding the transfer of Iran's enriched uranium and the status of frozen Iranian funds. The more optimistic tone helped crude prices settle lower.

Risk sentiment remained weak overall, however, with equities extending losses following Broadcom's (AVGO) disappointing earnings earlier in the week. The Nasdaq fell more than 4% on Friday, while reports also suggested Meta (META) may be considering a sizable equity issuance following Alphabet's (GOOGL) recent capital raise. 

Looking ahead, focus turns to next week's CPI and PPI reports, which will help determine whether higher energy costs are feeding through more broadly into the economy and further shape the Fed's reaction function. Treasury supply will also remain in focus.

• 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

• 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.

• Fed Pricing: 27.5bps (prev. Dec 16.3bps)
• EFFR at 3.62% (prev. 3.62%), volumes at USD 121bln (prev. USD 119bln) on June 4th
• SOFR at 3.62% (prev. 3.61%), volumes at USD 3.147tln (prev. USD 3.098tln) on June 4th
• NY Fed RRP op demand at 0.76bln (prev. 1.12bln) across 5 counterparties (prev. 18) on June 5th