TREASURY WRAP: T-NOTE FUTURES (M6) SETTLE 5+ TICKS LOWER AT 108-18

T-notes saw choppy trade on Thursday, with rates continuing to track the volatile crude price action.  At settlement, 2-year +1.5bps at 4.072%, 3-year +0.7bps at 4.132%, 5-year -0.7bps at 4.237%, 7-year -1.0bps at 4.399%, 10-year -1.7bps at 4.568%, 20-year -3.3bps at 5.099%, 30-year -2.9bps at 5.093%.

THE DAY: Crude and yields fell early morning on reports that Pakistan's Army Chief will travel to Tehran tonight as part of mediation efforts.

However, these moves did reverse after reports suggested Iran's Supreme Leader ordered enriched Uranium to stay in Iran, supporting both crude and yields. Nonetheless, this report was subsequently denied by Al Jazeera, citing Iran, and Fox, citing the US. Trump stated that the US will get Iran's Uranium, but Al Hadath took us back to where we began, noting the final decision from Iran's supreme leader is to not hand over enriched Uranium.

Yields hit lows after ILNA Telegram's account posted Al Arabiya TV with details of a final draft agreement between the US and Iran has been reached, seeing crude prices plummet with the report noting it is expected to be announced within the next few hours.

The reality is, there have been plenty of contradictory reports, and it remains to be seen whether a deal is really that close. Al Jazeera cites two sources, one saying negotiators are very close, but another said it is too early to say whether a serious, final agreement is in reach. Politico says there are still two major sticking points: 1) no nuclear weapons, and 2) opening the Strait of Hormuz. Al Hadath also reported that the Pakistani Army Chief will not travel to Tehran tonight. However, Al Jazeera says there is intense mediation activity, and they know the Pakistani Interior Minister is in Tehran. The Guardian also reported that Pakistan and Qatar have been pushing hard this week for a peace deal.

Data saw a limited reaction again. Continued claims remained low and stable, Housing starts and building permits saw a slight beat, with the Philly Fed showing weak current activity, but with firms optimistic about the outlook.

Fed speakers saw Barkin say policy is well-positioned, but he is not leaning towards overly focusing on risks to inflation or employment.

SUPPLY

Notes

• US sold USD 19bln of 10-year TIPS; Tails 1.9bps
• US to sell USD 69bln of 2-yr notes on May 26th, USD 28bln of reopened 2yr FRN and USD 70bln of 5-yr notes on May 27th, and USD 44bln of 7-yr notes on May 28th; all to settle on June 1st

Bills

• US sold 4-week bills at high rate of 3.610%, B/C 2.60x; sold 8-week bills at a high rate 3.600%, B/C 2.77x
• US to sell USD 25bln 27-day cash management bills on May 21st; to settle May 22nd
• US to sell USD 85bln of 6-week bills, USD 77bln of 26-week bills, and USD 89bln of 13-wk bills on May 26th, all to settle May 28th.

STIRS/OPERATIONS

• Fed Pricing: Dec 19.9bps (prev. 21.4bps)
• EFFR at 3.62% (prev. 3.62%), volumes at USD 119bln (prev. USD 119bln) on May 20th
• SOFR at 3.50% (prev. 3.51%), volumes at USD 3.082tln (prev. USD 3.111tln) on May 20th
• NY Fed RRP op demand at 3.28bln (prev. 24.87bln) across 9 counterparties (prev. 16) on May 21st
• Treasury buyback (5-7 year, liquidity support, max USD 4bln): Accepts USD 300mln of 3.71bln offered; offer-to-cover 12.4x.