TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 2 TICKS HIGHER AT 109-20+

T-notes little changed on return from Independence Day weekend ahead of supply and FOMC minutes. At settlement, 2-year -1.9bps at 4.118%, 3-year -2.3bps at 4.140%, 5-year -2.8bps at 4.204%, 7-year -2.1bps at 4.332%, 10-year -1.2bps at 4.473%, 20-year -0.2bps at 4.986%, 30-year +0.3bps at 4.988%.

THE DAY: It was a quiet return from the long Independence Day weekend, with the Treasury curve modestly steepening in subdued trading. There was little in the way of fresh macro catalysts, although crude prices edged lower after OPEC+ agreed over the weekend to increase oil production, in line with expectations. Additional downside pressure came after Saudi Aramco cut its official selling price for Arab Light crude to Asia by USD 11.00/bbl, marking the largest reduction in 26 years.

Geopolitical developments were limited. Reports suggested Islamabad is the leading candidate to host the next round of US-Iran technical talks, with July 11th emerging as the tentative meeting date.

Treasury futures came under some pressure during the US session amid a busy slate of corporate issuance, with Honda, Enel, Energy Transfer and Toyota all tapping the bond market. There may also have been some concession ahead of this week's Treasury supply, which includes 3-year, 10-year and 30-year coupon auctions.

Economic data and Fed commentary generated little market reaction. The ISM Services PMI came in slightly below expectations on the headline, although the decline in the prices paid component and the improvement in employment were viewed as constructive. Fed Governor Waller discussed the merits of forward guidance, noting it can be valuable but in some cases it is best not to use it at all. On the economic outlook, he observed that the balance of risks has shifted, arguing the labour market now appears broadly stable while inflation pressures have become the more pressing concern, altering how policymakers should think about monetary policy.

Looking ahead, attention turns to this week's Treasury supply, while the FOMC minutes on Wednesday will be closely watched for further insight into policymakers' appetite for rate hikes, the discussions surrounding the removal of forward guidance, and any early thinking on the broader policy reviews announced by Chair Warsh.

SUPPLY

Notes

• US Treasury to sell USD 58bln of 3-year notes on July 7th, USD 39bln of 10-year notes July 8th, and USD 22bln of 30-year bonds on July 9th; all to settle July 15th

Bills

• US sold 3-month bills at high-rate 3.735%, B.C 2.58x; sold 6-month bills at high-rate 3.830%, B/C 3.05x
• US to sell USD 90bln (prev. 80bln) of 6-week bills and USD 52bln (prev. 50bln) of 52-week bills on July 7th.

STIRS / OPERATIONS

• Fed Pricing: 30bps (prev. Dec +30bps)
• EFFR at 3.63% (prev. 3.63%), volumes at USD 121bln (prev. USD 121bln) on July 3rd
• SOFR at 3.64% (prev. 3.66%), volumes at USD 3.208tln (prev. USD 3.321tln) on July 2nd
• NY Fed RRP op demand at 2.72bln (prev. 2.17bln) across 13 counterparties (prev. 4) on July 6th