TREASURY WRAP: T-NOTE FUTURES (M6) SETTLE 2+ TICKS HIGHER AT 109-29

T-Notes were largely horizontal, seeing some upside on geopolitical optimism as energy prices fell. At settlement, 2-year -0.1bps at 4.035%, 3-year -0.4bps at 4.082%, 5-year +0.1bps at 4.176%, 7-year -0.5bps at 4.316%, 10-year -1.4bps at 4.477%, 20-year -1.6bps at 5.009%, 30-year -1.3bps at 5.008%.

THE DAY: US yields were skewed to the downside in an environment of lower oil prices on elevated optimism over an MoU which alludes to pogress in US-Iran talks. WTI and Brent slumped to session lows on a report via Iran State TV, which said it had seen a draft of the initial framework for the MoU with the US. The US later rejected some aspects of the reporting, yet the move lower in oil for the most part held, allowing Treasuries to hold onto modest gains. Adding to existing inflation concerns, a hawkish RBNZ hold saw precious metals hit, despite the risk-on mood and flattish dollar. We continued to see the ECB language tilt hawkish; Stournaras said a June hike is likely, for instance. Looking forward, any signs of the next breakthrough in geopolitical talks are the next focal point for T-Notes, while Thursday's PCE inflation report looms (it is expected to rise further away from the Fed inflation goal). Tomorrow also features weekly jobless claims, and another look at US GDP; additionally, there will be multiple Fed speakers, where expectations are for inflation to appear as a greater concern among the Fed's two mandates.

In supply, the US sold USD 28bln of 2YR FRNs with the high discount margin dropping to 0.089% from 0.103%, meanwhile, the treasury sold USD 70bln of 5yr notes, with the tail decreasing to 0.1bps from 0.5bps. The 5yr note auction showed some improvement from the prior, supported by indirect demand remaining well above the six auction average at 74.9% (average 63%), offsetting a dip in direct's proportion of the bid; muted reaction seen on the auction. 

In other news, overnight, Fed's Kashkari (2026 voter) said it is too early to predict the timing of the next Fed action when asked about market pricing for an October rate hike. He also touched on the growing global inflation concerns weighing on the bond markets.

SUPPLY

• US sold 17wk Bills at 3.63%, covered 3.01x
• US sells USD 28bln of 2yr FRN; High Discount Margin 0.089%. Click here for full 2yr FRN results.
• US sold USD 70bln of 5yr notes; tail 0.1bps. Click here for full 5yr note results.

STIRS/OPERATIONS

• Fed Pricing: Dec 15.6bps (prev. 17.6bps)
• EFFR at 3.62% (prev. 3.62%), volumes at USD 113bln (prev. USD 121bln) on May 23rd
• SOFR at 3.63% (prev. 3.55%), volumes at USD 3.127tln (prev. USD 3.078tln) on May 23rd
• NY Fed rrp op demand at USD 1.853bln (prev. 1.787bln) across 7 counterparties (prev. 6)