TREASURY WRAP: T-NOTE FUTURES (U6) SETTLE 9 TICKS HIGHER AT 109-30

T-notes rise across the curve, particularly the belly, as oil prices continue to slide. At settlement, 2-year -2.3bps at 4.047%, 3-year -3.1bps at 4.084%, 5-year -4.2bps at 4.151%, 7-year -5.1bps at 4.276%, 10-year -4.7bps at 4.426%, 20-year -5.1bps at 4.925%, 30-year -5.0bps at 4.924%,

THE DAY: T-notes traded higher on Tuesday as oil prices continued to plummet in the wake of the US-Iran agreement, helping ease inflation concerns and support Treasuries. Energy prices took another leg lower after reports that Qatar expects to restore half of its LNG output within one month of the Strait of Hormuz reopening, with production expected to reach 80% of full capacity within two months.

The belly outperformed on the day as attention increasingly turns to Wednesday's FOMC decision. Focus will centre on Chair Warsh's first press conference, with many Fed watchers not expecting him to submit SEP forecasts, either due to the limited time he has spent at the Fed or as a reflection of his scepticism towards forward guidance. Focus will centre on whether the Committee removes its easing bias from the statement, delivers a more hawkish set of economic projections and dot plots, and how Chair Warsh frames the outlook for inflation, growth, future policy and Fed reforms.

Elsewhere, US data was mixed. The weekly ADP employment measure slowed to 25.5k from 29k (revised), while housing starts fell 15%, well below expectations. Building permits, however, were broadly in line with consensus. Meanwhile, import and export prices both came in firmer than expected, although import price inflation cooled from the previous month while export prices maintained their prior pace.

The USD 13bln 20-year bond auction was notably strong, although it generated little reaction in Treasury futures. The auction stopped through by 1bp and saw a surge in indirect demand to 73.2% from 67.7%, while dealers were left with just 8.48% of the offering. The result was reminiscent of last week's strong 10-year auction and suggests foreign demand remains healthy despite yields having retreated from their recent highs.

Central bank activity also remained elevated. Overnight, the BoJ raised rates by 25bps to 1.00% as expected. The central bank also announced it would maintain its current pace of JGB purchase reductions through early 2027 before slowing the pace of future tapering. Meanwhile, the RBA left rates unchanged in a unanimous decision, although policymakers maintained a hawkish tone and reiterated their willingness to tighten policy further if required.

SUPPLY

Notes

• US sold USD 13bln of 20-year bonds; Stopped through 1bps.
• US Treasury to sell USD 24bln of 5-year TIPS on June 18th, to settle June 30th

Bills

• US sold 6-week bills at a high rate of 3.600%, B/C 3.12x
• US to sell USD 69bln of 17-wk bills on June 17th; to sell USD 75bln of 8-wk bills and USD 70bln of 4-wk bills on June 18th; all to settle on June 23rd

STIRS/OPERATIONS

• Fed Pricing: 20bps (prev. Dec 18.7bps)
• EFFR at 3.63% (prev. 3.62%), volumes at USD 102bln (prev. USD 110bln) on June 15th
• SOFR at 3.69% (prev. 3.65%), volumes at USD 3.147tln (prev. USD 3.059tln) on June 15th
• NY Fed RRP op demand at 10.72bln (prev. 0.58bln) across 5 counterparties (prev. 8) on June 16th
• NY Fed T-Bill Purchases (1-4 month): Accepts USD 6.64bln of USD 41.07bln offered; Offer-to-cover 6.19x