GILTS: Off Highs

Long end swap spreads are still struggling to rally, despite Tsys moving away from session lows after the House Freedom Caucus Chair noted that “we are still a long ways away” from agreement on the ‘One Big Beautiful Bill’.

• 10- & 30-Year swap spreads hover close to yesterday’s lows.
• Swap spread bulls will continue to point to heightened potential for SLR reform, with the matter clearly a front of mind subject for the likes of Treasury Secretary Bessent.
• However, the seemingly structural cheapening of Tsys vs. swaps in light of Moody’s late Friday sovereign credit rating downgrade of the U.S. means that any rally driven by subsequent SLR reform is likely to result in a slightly lower peak for swap spreads than would have otherwise been the case.

Representative Andy Harris (R-MD), the chair of the conservative House Freedom Caucus, told reporters "we’re still a long ways away" from an agreement with Republican leadership on the 'One Big Beautiful' reconciliation bill, following an address from US President Donald Trump.

• Harris said "he’s still a no", citing “waste, fraud and abuse” in Medicaid, per Punchbowl News. He added that he thinks "we can get there" but said, "maybe not by tomorrow,” which is when House Speaker Mike Johnson (R-LA) has teed up a key procedural vote in the House Rules Committee.
• Erik Wasson at Bloomberg reports similarly that Trump, "didn’t change [Harris'] view" as the bill doesn’t cut spending enough. "He’s still a hard no!!"
• Trump singled out Rep Thomas Massie (R-KY) as a "grandstander", saying he could never get his vote. Reminder: Johnson can likely only drop three votes in a final vote on the package.
• Trump also reportedly rebuked blue-state Republicans holding out for a higher cap on State and Local Tax (SALT) deductions. He told Rep Mike Lawler (R-NY): “I know your district better than you do, if you lose because of SALT you were going to lose anyway.”
• The White House has published a fact sheet with 20 reasons why Congress should get behind the bill here.
• The House Rules Committee is scheduled to gavel in at 01:00 ET 06:00 BST tomorrow morning. If the package is advanced out of the committee, a final vote is possible tomorrow. If the bill stalls in Rules, lawmakers are in for an extended session before being released by Johnson for recess.

Option desks report better SOFR two-way outs on net this morning, Treasury options seeing some decent vol structures leaning towards sales so far. Underlying futures mixed, curves steeper with short end leading bounce off morning lows. Projected rate cut pricing holds steady to cooler in longer dates vs. late Monday levels (*) as follows: Jun'25 at -1.3bp (-2.1bp), Jul'25 at -7.5bp (-8.9bp), Sep'25 at -21.8bp (-24.6bp), Oct'25 at -35.5bp (-36.4bp), Dec'25 at -53bp (-53.5bp).

• SOFR Options:
  • 8,000 SFRZ5 96.50 call vs. 2QZ5 96.75 calls, 5-5.25 flattener (+2QZ5)
  • +10,000 SFRU5 95.75/95.81 put spds, 3.75 vs. 95.90/0.10%
  • -5,000 0QU5 96.87/97.00/97.12 call trees, 7.0 vs. 96.00/0.19%
  • -2,500 3QM5 95.87/96.12 2x1 put spds, 1.5 ref 96.33
  • +4,000 SFRM5 95.68/95.75 put spds, 5.5 ref 95.6825
  • +5,000 SFRU5 95.87 vs. 0QU5 96.25 put spds, 1.25
  • 5,000 SFRN5 95.62 puts, 0.5
  • 4,000 SFRH6 94.75 puts, ref 96.42
  • Block, 5,000 SFRM5 95.62/95.75/95.87 put flys, ref 95.69
  • 3,600 SFRM5 95.68/95.75 put spds ref 95.6925 to -.69
• Treasury Options:
  • -7,800 TYN5 110 straddles 1-41 ref 110-03.5
  • -11,000 TYM5 110.25/111.5 put spds 1-05
  • +9,000 TYQ5 108/112.5 strangle, 59
  • Block, +17,000 TYQ5 113 call w/ 17,500 TYQ5 107.5 puts, 47 total vs. 110-05
  • 2,400 TYN5 114/114.5 call spds ref 110-14