TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 3 TICKS HIGHER AT 109-22+

T-notes flatten as rising oil prices drive Treasury trade, with above-expected JOLTS data only briefly adding to yield pressure. At settlement, 2-year +1.2bps at 4.045%, 3-year +1.3bps at 4.093%, 5-year +0.7bps at 4.174%, 7-year +0.6bps at 4.307%, 10-year unchanged at 4.453%, 20-year -0.6bps at 4.966%, 30-year -0.4bps at 4.967%.

THE DAY: T-notes saw two-way trade on Tuesday, with gradual gains overnight and through the European morning before reversing in the US session. The curve flattened as front-end yields rose around 1bp while 20- and 30-year yields edged lower.

The primary driver of Treasury price action remains crude oil. Energy prices caught a bid after Fars News reported that the US and Iran had halted communications via mediators. The move higher in crude supported yields, although session highs in rates were briefly seen following the US JOLTS report. JOLTS job openings surprised to the upside, although analysts at Oxford Economics argued the strength likely overstates underlying labour market conditions, noting the increase was concentrated in a single sector and did not translate into stronger hiring. The consultancy ultimately views the report as consistent with a labour market that remains stable rather than one that is reaccelerating.

The initial data-induced sell-off quickly pared before yields gradually moved higher again alongside crude prices through the remainder of the session. Oil gains held despite President Trump dismissing reports that communications with Iran had ceased, labelling the reports as "fake news". Meanwhile, attention remains on Israel-Hezbollah negotiations in Washington, where key differences remain unresolved. Reports suggest the US is seeking a comprehensive ceasefire by the conclusion of tomorrow's round of talks.

Aside from geopolitics, focus now turns to Friday's May nonfarm payrolls report.

• STIRS/OPERATIONS
• Fed Pricing: Dec 17.5bps (prev. 17.9bps)
• EFFR at 3.62% (prev. 3.62%), volumes at USD 123bln (prev. USD 109bln) on June 1st
• SOFR at 3.65% (prev. 3.63%), volumes at USD 3.224tln (prev. USD 3.201tln) on June 1st
• NY Fed RRP op demand at 2.50bln (prev. 1.30bln) across 32 counterparties (prev. 5) on June 2nd