TREASURY WRAP: T-NOTE FUTURES (M6) SETTLE 7+ TICKS HIGHER AT 110-24

 T-notes chop to oil price swings and strong NFP data.  

THE DAY: T-notes were firmer on Friday, paring some of Thursday’s weakness. Oil prices saw two-way trade throughout the session, with early downside in crude supporting Treasuries before T-notes pared gains as oil recovered from lows. The geopolitical backdrop remained fluid. Further explosions were reported in the Strait of Hormuz, with reports suggesting US destroyers had come under fire before the US retaliated. President Trump later described the response as a “love tap” and reiterated that the ceasefire remains in place. 

Meanwhile, markets continued to await Iran’s response to the latest US proposal, although Tasnim instead reported that Tehran is preparing a legal framework regarding the Strait of Hormuz, which could become a “deterrent and permanent law”. Additional clashes were later reported in the Strait.

On the data front, the highlight was the April nonfarm payrolls report, which was broadly strong. The US economy added 115k jobs, above the 73k forecast, although beneath the prior 185k, while the unemployment rate remained steady at 4.3%. Participation ticked lower. T-notes initially sold off on the release, with the resilient labour market reinforcing the view that the Fed can remain focused on inflation risks rather than downside labour concerns for now. However, the move largely pared as Treasuries continued to take direction from oil price action.

Elsewhere, the University of Michigan consumer sentiment survey declined, driven by weaker current conditions, while forward-looking expectations improved slightly. Inflation expectations eased, with the 1-year measure falling to 4.5% from 4.7%, while the 5-year declined to 3.4% from 3.5%. 

SUPPLY

Notes

• US to sell USD 58bln of 3-year notes on 11th May, USD 42bln of 10-year notes on 12th May and USD 25bln of 30-year bonds on 13th May

Bills

• US to sell USD 77bln of 26-week bills and USD 89bln of 13-week bills on May 11th, to sell USD 80bln of 6-week bills and USD 50bln of 52-week bills on May 12th; all to settle May 14th

STIRS/OPERATIONS

• Fed Pricing: Dec +2.9bps (prev. +5.6bps).
• EFFR at 3.63% (prev. 3.64%), volumes at USD 119bln (prev. USD 118bln) on May 7th
• SOFR at 3.60% (prev. 3.61%), volumes at USD 3.106tln (prev. USD 3.129tln) on May 7th
• NY Fed RRP op demand at 0.77bln (prev. 1.63bln) across 6 counterparties (prev. 7) on May 7th.