TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 10+ TICKS LOWER AT 109-00

T-notes lower across the curve as oil prices rise on rising US/Iran tensions. At settlement, 2-year +1.4bps at 4.201%, 3-year +2.5bps at 4.238%, 5-year +2.1bps at 4.306%, 7-year +1.9bps at 4.430%, 10-year +1.0bps at 4.561%, 20-year +1.1bps at 5.072%, 30-year +0.5bps at 5.062%.

THE DAY: Treasuries were weaker across the curve on Wednesday as renewed geopolitical tensions reignited inflation concerns. Overnight, the US struck targets in southern Iran, while Tehran responded with attacks on US military sites in the Gulf. Later in the session, President Trump said he believed the ceasefire was over. The renewed escalation lifted crude prices further, extending gains seen after this week's attacks in the Strait of Hormuz and the US decision to revoke Iran's licence to produce, deliver and sell energy products.

Aside from geopolitics, focus also fell on the June FOMC Minutes, which largely reinforced the hawkish message from the meeting. A few participants noted there was a case for raising the target range at the June meeting but ultimately supported leaving rates unchanged. The discussion around the policy outlook remained divided, with many participants judging that the appropriate policy rate over time would be within or slightly below the current target range, while many others viewed it as appropriate to move above the current range, broadly reflecting the dispersion seen in the June dot plot. On communications, a majority saw advantages in shortening the FOMC statement, while most participants preferred not to reintroduce the easing bias into future statements.

Meanwhile, the USD 39bln 10-year note auction was met with strong demand, stopping through by 0.6bps, the largest stop-through since January. Exceptionally strong indirect demand more than offset another decline in direct participation, highlighting robust foreign appetite for benchmark Treasury exposure at current yield levels.

Attention now turns to Thursday's USD 22bln 30-year bond auction, although geopolitical developments and their implications for the inflation outlook are likely to remain the primary driver of Treasury price action.

SUPPLY

Notes

• US sold USD 39bln of 10-year notes; stop-through 0.6bps
• US Treasury to sell USD 22bln of 30-year bonds on July 9th; all to settle July 15th

Bills

• US sold 17-wk bills at high-rate 3.790%, B/C 3.41x
• US to sell USD 100bln of 4-week bills (prev. 85bln) and USD 95bln of 8-week bills (prev. 85bln) on July 9th.

STIRS / OPERATIONS

• Fed Pricing: Dec 36bps (prev. 32bps)
• EFFR at 3.63% (prev. 3.63%), volumes at USD 117bln (prev. USD 117bln) on July 7th
• SOFR at 3.62% (prev. 3.63%), volumes at USD 3.154tln (prev. USD 3.212tln) on July 7th
• NY Fed RRP op demand at 3.35bln (prev. 4.48bln) across 8 counterparties (prev. 14) on July 8th