IRAN: Khamenei Stresses No Surrender, Distaste For U.S. Threats

• Fed Funds implied rates are up to 2bp lower from Friday’s close for 2025 meetings as lower equity and and crude oil futures weigh (S&P 500 -1.3%, WTI -1.1%).
• They’re still close to recent hawkish extremes though, with a next Fed cut only fully priced for October (but still close with Sept).
• Cumulative cuts from 4.33% effective: 2bp Jun, 9.5bp Jul, 22.5bp Sep, 35bp Oct and 52bp Dec.
• SOFR implied yields are increasingly higher further out the curve though, amidst Treasury market steepening following Moody’s downgrading the US from Aaa to Aa1 on Friday,.
• The terminal yield of 3.40% (SFRZ6) is 3bp higher on the day, back close to levels seen just prior to Apr 2 Liberation Day announcements. It pushed as high as 3.485% last week (for pricing at close) but struggled to hold onto the move. SFRZ7 meanwhile is 5.5bp higher.
• President Trump offered his latest criticism of the Fed’s Powell on Saturday. His May 17 Truth Social post: “THE CONSENSUS OF ALMOST EVERYBODY IS THAT, “THE FED SHOULD CUT RATES SOONER, RATHER THAN LATER.” Too Late Powell, a man legendary for being Too Late, will probably blow it again - But who knows???”
• Today’s docket is led by Fedspeak – see our 0604ET bullet on why we think main focus there should be on ’26 voters Kashkari and Logan. 

• RES 4: 112-20+ High May 1 and a bull trigger  
• RES 3: 112-01+ High May 2  
• RES 2: 111-22   High May 7 and a key near-term resistance 
• RES 1: 110-25+ 20-day EMA
• PRICE:‌‌ 109-24 @ 11:19 BST May 19
• SUP 1: 109-18+ Low May 15  
• SUP 2: 109-08   Low Apr 11 and key support
• SUP 3: 108-26+ 76.4% retracement of the Jan 13 - Apr 7 bull cycle
• SUP 4: 108-21   Low Feb 19  

Treasury futures maintain a bearish tone and the contract is trading closer to its recent lows. Support at 110-01+, 76.4% of the Apr 11 - May 1 bull leg, has been cleared. The breach exposes a key support at 109-08, the Apr 24 low and a bear trigger. Key near-term resistance has been defined at 111-22, the May 7 high. A move above this level is required to signal a potential reversal. First resistance is at 110-25+, the 20-day EMA. 

OI data points to a mix of net short setting, long cover and long setting dominating as the SOFR futures strip twist flattened on Friday.

• Net short setting was seen in the very front end, before net long cover was noted in SFRZ5 through M6.
• Net long setting then dominated beyond SFRU6.