TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 8+ TICKS HIGHER AT 109-08+

T-notes gain as Trump says Iran wants a deal while fresh strikes avoid energy infrastructure. At settlement, 2-year -5.2bps at 4.164%, 3-year -5.6bps at 4.203%, 5-year -5.6bps at 4.271%, 7-year -5.2bps at 4.398%, 10-year -4.0bps at 4.541%, 20-year -3.0bps at 5.060%, 30-year -2.1bps at 5.054%.

THE DAY: Treasuries rallied across the curve on Thursday as oil prices declined. The weakness in crude came despite continued military exchanges between the US and Iran overnight, with selling pressure emerging after President Trump said Iran had reached out to the US and wanted to make a deal, easing concerns about a further escalation that could threaten energy infrastructure.

Focus remained firmly on geopolitics following this week's escalation in tensions, with economic data generating little market reaction. The latest jobless claims report saw both initial and continuing claims decline, reinforcing the narrative of a resilient labour market. However, attention is likely to remain on next month's nonfarm payrolls report to assess whether June's softer employment print proves to be a one-off or the beginning of a broader slowdown.

Fed commentary came from New York Fed President Williams, who reiterated that the labour market remains stable while inflation continues to pose the greater risk. He stressed that inflation remains too high, policy will remain data-dependent, and the Committee is closely monitoring how energy prices feed through into the inflation outlook. Williams also acknowledged uncertainty surrounding the neutral rate. On the balance sheet, he said it remains unclear how much further the Fed's holdings can be reduced, arguing the debate should not focus on the nominal size of the balance sheet.

Meanwhile, the USD 22bln 30-year bond auction was met with decent demand, stopping through by 0.3bps. Similar to Wednesday's 10-year auction, exceptionally strong indirect demand more than offset another sharp decline in direct participation, suggesting overseas demand for long-duration Treasuries remains robust despite the recent pickup in geopolitical tensions and higher oil prices.

• 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

• 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.

• Fed Pricing: Dec 33bps (prev. 36bps)
• EFFR at 3.62% (prev. 3.63%), volumes at USD 131bln (prev. USD 117bln) on July 8th
• SOFR at 3.58% (prev. 3.62%), volumes at USD 3.158tln (prev. USD 3.154tln) on July 8th
• NY Fed RRP op demand at 5.77bln (prev. 3.35bln) across 6 counterparties (prev. 8) on July 9th
• NY Fed T-Bill Purchases (1-4 month): Accepts USD 6.64bln of USD 29.19bln offered; Offer-to-cover 4.40x
• Treasury Buyback [Liquidity support, 2-3 year, max USD 4bln]: Accepts USD 2.295bln of USD 12.464bln offered; Offer to cover 5.43x