TREASURY WRAP: T-NOTE FUTURES (M6) SETTLE 4+ TICKS HIGHER AT 109-21

Yield curve bull steepens as front-end outperforms on lower oil prices following US-Iran MoU. At settlement, 2-year -2.7bps at 4.060%,3 -year -3.2bps at 4.104%, 5-year -3.0bps at 4.181%, 7-year -2.5bps at 4.315%, 10-year -1.8bps at 4.465%, 20-year -1.1bps at 4.969%, 30-year -0.4bps at 4.967%.

THE DAY: Treasuries bull steepened on Monday amid a sharp decline in crude prices after the US and Iran officially agreed to end the conflict, remove the US naval blockade, and reopen the Strait of Hormuz.

An official signing ceremony is expected to take place in Switzerland on Friday, although the memorandum of understanding has already been signed virtually by US VP Vance, President Trump, and Iranian Parliamentary Speaker Ghalibaf. The agreement helped send crude prices sharply lower, with markets beginning to remove some of the geopolitical risk premium that had been embedded in energy markets.

However, details surrounding the agreement remain somewhat unclear. Reports have differed on whether the memorandum includes Lebanon, with Israel stating its forces will not withdraw from southern Lebanon at this stage. Trump said the agreement includes a ceasefire on all fronts, while a senior US official suggested the deal does not require an Israeli withdrawal, although Israel retains the right to defend itself. Meanwhile, Iranian news agency Fars denied reports that Lebanon had been excluded from the agreement.

Officials have also suggested the Strait of Hormuz could reopen quickly, although shipping companies appear cautious about returning immediately. As a result, markets continue to assess whether oil prices can remain materially lower if the resumption of energy flows proves slower than expected. Ongoing nuclear negotiations with Iran and uncertainty surrounding the Israel-Lebanon situation also continue to cloud the outlook.

Treasuries initially rallied at the reopen, tracking the sharp decline in crude prices, but gradually pared those gains throughout the session to settle modestly firmer, with the front-end continuing to outperform. The price action suggests investors remain somewhat cautious about fully unwinding inflation risk premia until there is greater clarity surrounding energy markets and the broader regional outlook.

Also contributing to the paring of Treasury gains was Nvidia's (NVDA) USD 25bln bond offering, upsized from an initially proposed USD 20bln after attracting roughly USD 85bln of demand. Nvidia is issuing debt across maturities ranging from 2 years to 30 years, with reports suggesting the 10-year tranche will price around 75bps above comparable Treasuries. The sizeable corporate supply added some pressure to the Treasury market.

On the data front, the NY Fed Empire Manufacturing survey, Industrial Production, and the NAHB Housing Market Index all came in softer than expected, although the releases generated little market reaction. Attention now turns to Wednesday's FOMC decision, where rates are widely expected to remain unchanged. Focus will centre on whether the Committee removes its easing bias from the statement, potential upward revisions to inflation forecasts, lower unemployment projections, and a more hawkish set of dot plots. However, the key event risk will likely be Chair Warsh's press conference, where investors will be looking for greater clarity on his policy views and any potential changes he may seek to implement at the Federal Reserve.

SUPPLYNotes

• US Treasury to sell USD 13bln of 20-year bonds on June 16th, to settle June 22nd; to sell USD 24bln of 5-year TIPS on June 18th, to settle June 30th

Bills

• US sold 3-month bills at a high rate of 3.64%, B/C 2.47x; sold 6-month bills at a high rate of 3.680%, B/C 2.76x.
• US to sell USD 65bln of 6-week bills on June 16th, to settle on June 18th

STIRS/OPERATIONS

• Fed Pricing: 18.7bps (prev. Dec 24bps)
• EFFR at 3.62% (prev. 3.62%), volumes at USD 110bln (prev. USD 106bln) on June 12th
• SOFR at 3.65% (prev. 3.60%), volumes at USD 3.059tln (prev. USD 3.061tln) on June 12th
• NY Fed RRP op demand at 0.58bln (prev. 0.45bln) across 8 counterparties (prev. 6) on June 15th