TREASURY WRAP: T-NOTE FUTURES (M6) SETTLE 18+ TICKS HIGHER AT 109-26+

T-Notes bid as progress towards finalisation of US-Iran agreement sees oil prices drop at the start the week. At settlement, 2-year -7.4bps at 4.049%, 3-year -7.3bps at 4.098%, 5-year -7.2bps at 4.186%, 7-year -7.0bps at 4.329%, 10-year -6.0bps at 4.496%, 20-year -4.4bps at 5.029%, 30-year -3.5bps at 5.028%.

THE DAY: T-notes returned from a long weekend in green territory, with gains driven by geopolitical optimism, amid perceived progress in talks between the US and Iran, with US Secretary of State Rubio saying negotiations could take a few days,  although the announcement of a finalisation of an agreement has been repeatedly pushed back. A larger decline in oil prices was offset by the resumption of strikes in the Middle East, in which the US said it conducted self-defence measures in Southern Iran late Monday. Iran's aerospace chief has reportedly warned of a "decisive response" to US truce violations.

US consumer confidence fell in May to 93.1 (exp. 92, prev. revised higher to 93.8). The intensification of the Middle East's inflationary impacts weighed on consumer sentiment, the report said. 

In supply, the US sold USD 68bln of 2yr notes, which saw an average outcome. A tail of 0.0bps was seen (avg 0.2bps) with dealers' bid proportion at 12.3%, slightly up from 11.9%, yet remains beneath the 12.8% average. T-notes saw a muted reaction on the auction and the CB's consumer confidence report. ZN M6 traded between 109-17 to 110-00.

SUPPLY

• US to sell USD 69bln 17wk bills on May 27th, USD 85bln 4wk bills on May 28th, and USD 80bln 8wk bills on May 28th; all to settle on June 2nd
• US sell 3-month Bills at a High Rate of 3.595%, B/C 3.08x; sells 6-month Bills at a High Rate of 3.65%, B/C 2.77x

STIRS/OPERATIONS

• Fed Pricing: Dec 17.6bps (prev. 26.2bps)
• EFFR at 3.62% (prev. 3.62%), volumes at USD 121bln (prev. USD 120bln) on May 22nd
• SOFR at 3.55% (prev. 3.51%), volumes at USD 3.078tln (prev. USD 3.077tln) on May 22nd
• NY Fed RRP op demand at 1.787bln (prev. 0.965bln) across 6 counterparties (prev. 5) on May 26th