TREASURY WRAP: T-NOTE FUTURES (M6) SETTLE 3+ TICKS HIGHER AT 110-03+

T-notes saw relatively muted trade on Thursday, although the curve flattened modestly as front-end yields edged higher while the long-end outperformed slightly. At settlement, 2-year +2.1bps at 3.998%, 3-year +2.0bps at 4.037%, 5-year +1.4bps at 4.128%, 7-year +0.7bps at 4.290%, 10-year -0.2bps at 4.465%, 20-year -0.9bps at 5.016%, 30-year -1.5bps at 5.019%.

THE DAY: Oil prices were ultimately little changed on Thursday, with focus largely on the US/China summit. Neither side commented significantly on Iran or Taiwan, although President Trump said both countries agreed the Strait of Hormuz must remain open and reiterated that Iran can never obtain a nuclear weapon.

The summit itself appeared constructive, with the US and China reaching several agreements involving Nvidia (NVDA) and Boeing (BA), while Treasury Secretary Bessent remarked that “soybeans are all taken care of”.

On geopolitics, reports continued to suggest the Trump administration is discussing options for military escalation to break the deadlock in Iran talks, with markets still expecting any major decision to potentially come after Trump’s return from China. Meanwhile, Pakistan reportedly remains optimistic regarding negotiations, while Saudi Arabia floated the possibility of a non-aggression pact with Iran and the Gulf states, which helped weigh modestly on crude prices.

US data continued to point towards sticky inflation but resilient underlying activity. Import and export prices both rose above expectations, reinforcing concerns that higher energy costs are feeding through into broader parts of the economy. However, jobless claims remained stable at 205k, signalling continued labour market resilience, while retail sales showed little sign of disruption despite elevated gasoline prices.

Overall, while inflation pressures continue to broaden, the consumer and labour market still appear resilient, supporting the view that the Fed can maintain its focus on inflation risks rather than downside growth concerns for now.

SUPPLY

Notes

• US to sell USD 16bln of 20-year bonds on May 20th; to settle June 1st; to sell USD 19bln of 10-year TIPS; to settle May 29th

Bills

• US sold 8-wk bills at high-rate 3.610%, B/C 2.72x
• US to sell USD 89bln of 13-week bills (prev. 89bln) and USD 77bln of 26-week bills (prev. 77bln) on May 18th.
• US to sell USD 85bln of 6-week bills on May 19th (prev. 80bln)

STIRS/OPERATIONS

• Fed Pricing: Dec 11.9bps (prev. Dec 10.2bps)
• EFFR at 3.63% (prev. 3.63%), volumes at USD 123bln (prev. USD 118bln) on May 13th
• SOFR at 3.59% (prev. 3.60%), volumes at USD 3.119tln (prev. USD 3.097tln) on May 13th
• NY Fed RRP op demand at 2.03bln (prev. 3.61bln) across 8 counterparties (prev. 5) on May 14th