TREASURY WRAP: T-NOTE FUTURES (M6) SETTLE 5+ TICKS LOWER AT 110-27+

Treasuries sold off across the curve on Tuesday, with front-end underperformance as yields rose on the back of firmer oil prices. At settlement, 2-year +4.5bps at 3.844%, 3-year +4.2bps at 3.867%, 5-year +3.3bps at 3.981%, 7-year +2.2bps at 4.156%, 10-year +1.2bps at 4.352%, 20-year +0.4bps at 4.931%, 30-year -0.1bps at 4.944%.

THE DAY: T-notes came under pressure throughout the session, particularly at the front-end, as crude prices rallied on reports that President Trump is unlikely to agree to Iran’s latest proposal, reigniting inflation concerns. The sell-off moderated later in the session as oil came off highs following reports the UAE is set to quit OPEC, while Trump also suggested Iran wants the US to reopen the Strait of Hormuz as soon as possible.

Geopolitics remained the primary driver, with fluctuations in crude dictating intraday price action. There was also some spillover pressure from Europe, with Bunds weighed on after reports Germany plans to boost 2027 borrowing by EUR 98bln versus 2026.

On the data front, consumer confidence declined but by less than expected, while 12-month inflation expectations eased slightly but remained elevated. ADP employment was largely unchanged at 39k, although the report noted a downward revision to hiring momentum into early April. Data once again took a back seat to geopolitical developments and energy-driven inflation dynamics.

Elsewhere, the BoJ left rates unchanged as expected, although a hawkish vote split was offset by Governor Ueda’s non-committal stance on the timing of future tightening.

On the supply front, the 7-year auction was broadly in line with recent averages and had little impact on price action.

SUPPLY

Notes

• US sold USD 30bln of 2-year FRNs; High discount margin 0.103% (prev. 0.12%, six-auction average 0.14%)
• Overall, an in-line 7-year auction. The US Treasury sold USD 44bln of notes at a high yield of 4.175%, below the prior 4.255% but above the six-auction average of 3.927%, tailing the when issued (4.170%) by 0.5bps. This was an improvement from the prior 0.8bps tail but slightly softer than the 0.4bps six-auction average. The bid-to-cover rose to 2.51x from 2.43x and above the 2.47x average, suggesting solid overall demand. The breakdown showed a recovery in direct demand to 30.01% from 25.0%, above the 27.2% average, indicating real money participation improved. Indirect demand fell to 58.35% from 62.6% and below the 61.3% average, while dealers were left with 11.64% of the auction, broadly in line with both the prior and the 11.6% average. Overall, the auction was well absorbed and broadly in line with recent averages, with stronger direct demand offsetting softer indirect participation.

Bills

• US sold 6-wk bills at high-rate 3.590%, B/C 3.14x
• US to sell USD 69bln 17-week bills on 29th April; USD 80bln of 4-week and USD 75bln of 8-week bills on 30th April; to settle 5th May

STIRS/OPERATIONS

• NY Fed RRP op demand at 0.64bln (prev. 0.36bln) across 6 counterparties (prev. 5) on April 28th
• SOFR at 3.66% (prev. 3.66%), volumes at USD 3.058tln (prev. USD 3.047tln) on April 27th
• EFFR at 3.64% (prev. 3.64%), volumes at USD 85bln (prev. USD 97bln) on April 27th
• US Treasury Buyback [Liquidity Support, 20-30year, max purchase USD 2bln]: Accepted 2bln of 35.562bln offers; accepted 6 issues of 35 eligible