TREASURY WRAP: T-NOTE FUTURES (M6) SETTLE TICKS HIGHER AT 9 TICKS LOWER AT 110-16+

T-notes saw two-way trade as oil prices swung to a fluid geopolitical situation, but ultimately settled lower. At settlement, 2-year +4.7bps at 3.917%, 3-year +5.1bps at 3.944%, 5-year +4.4bps at 4.043%, 7-year +4.2bps at 4.216%, 10-year +4.2bps at 4.394%, 20-year +3.7bps at 4.963%, 30-year +3.7bps at 4.975%.

THE DAY: T-notes saw two-way trade as oil prices swung on fluid geopolitical developments, although Treasuries ultimately settled lower. 

T-notes were bid through the European morning as crude prices declined on reports the US and Iran were nearing an agreement on reopening the Strait of Hormuz, with some reports suggesting a breakthrough could come within hours. Meanwhile, reports also noted Iran may hand over its response to the latest US proposal later in the day.

However, sentiment reversed as optimism faded. Iran’s Foreign Minister said Tehran was still reviewing the proposal and would not accept an “unrealistic” US plan regarding Hormuz. Crude prices extended gains through the US session after the WSJ reported Saudi Arabia and Kuwait had lifted restrictions on the US using bases and airspace for “Project Freedom”, potentially allowing the US to resume operations around the Strait. The development heightened geopolitical risks further by potentially bringing additional Gulf infrastructure into Iranian crosshairs. However, Al Jazeera later denied the reports. 

As oil prices rebounded, Treasuries reversed lower, with the curve bear flattening as front-end yields led the move amid renewed inflation concerns.

Data and Fed speak once again took a back seat. Challenger layoffs accelerated in April ahead of Friday’s NFP report, while the Revelio Labs payroll estimate showed job growth accelerating to 66k. Initial jobless claims rose back to 200k from the prior week's multi-decade low of 190k, although they remain consistent with a still-resilient labour market. Unit labour costs cooled to 2.3% from 4.4%, while productivity growth slowed to 0.8% from 1.8%. Elsewhere, NY Fed inflation expectations rose on the 1-year horizon to 3.6% from 3.4%, while the 3- and 5-year measures were unchanged.

Fed commentary saw Collins say she would have sided with the recent statement dissenters, while Hammack argued policy should be neutral amid uncertainty. Kashkari reiterated inflation remains too high.

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
• US sold 4-week bills at a high rate of 3.610%, B/C 2.59x; sold 8-week bills at high rate of 3.595%, B/C 2.91x

STIRS/OPERATIONS

• Fed Pricing: Dec +5.6bps (prev. +2.8bps)
• EFFR at 3.64% (prev. 3.64%), volumes at USD 118bln (prev. USD 113bln) on May 6th
• SOFR at 3.61% (prev. 3.62%), volumes at USD 3.129tln (prev. USD 3.148tln) on May 6th
• NY Fed RRP op demand at 0.77bln (prev. 1.63bln) across 6 counterparties (prev. 7) on May 7th