US TSYS: Post-May Employment Data React: Yields Jump

Treasury made no changes to nominal auction sizes for the upcoming quarter and kept its issuance guidance unchanged again, saying its current auction sizes leave it "well positioned to address potential changes to the fiscal outlook and to the size and composition of the SOMA portfolio." 

• Repeats, "Treasury anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters."
• Dealers generally anticipate nominal coupon auction sizes might next increase in early 2027, and expect Treasury to modify its forward guidance several quarters ahead of such a change, according to the TBAC minutes.
• The median primary dealer forecast for privately-held net marketable borrowing implies a USD1.3 trillion funding shortfall in FY2027-28 based on current coupon auction sizes and bill supply, the minutes said.
• TBAC "overwhelmingly" viewed the recently modified Enhanced Supplementary Leverage Ratio (eSLR) and bank capital changes proposed in March as helpful to the Treasury market. Dealers said eSLR had enabled greater intermediation, and the proposed changes to bank capital were expected to result in incremental additional demand for Treasury securities from depository institutions as well as unlock balance sheet space that would most likely be deployed to repo. 

Actual auction sizes for the February to April 2026 quarter and the anticipated auction sizes for the May to July 2026 quarter, in billions of dollars: 

Pakistani sources tell Al Arabiya "We have a draft agreement, the majority of whose clauses have the approval of both parties. The draft agreement sets a timetable for ending all hostile actions. The agreement draft sets a timetable for upcoming negotiation rounds. Draft agreement includes complete end to the war. The draft agreement includes reopening the Strait of Hormuz to international navigation".

SOFR & Treasury options trade outlined below: mixed trade but leaning bullish with put sales and call buyers. Underlying futures well bid but scaling off highs as markets continue to digest US/Iran headlines - sifting rhetoric for facts. Projected rate pricing vs. late Tuesday lvls (*): Jun'26 at -1.5bp, Jul'26 at -3.6bp (-3.1bp), Sep'26 at -4.8bp (-2.0bp), Oct'26 at -2.1bp (+1.9bp), Dec'26 +0.4bp (+6.7bp).

• SOFR Options:
  • 5,350 SFRM6 96.31/96.43/96.56 call flys, 3.25 ref 96.37
  • 6,000 SFRM6 96.25/96.31 put spds, .25 ref 96.37
  • -2,000 SFRU6 96.18/96.31 put spds, 2.5 ref 96.36
  • -2,000 0QM6 95.62/95.75/96.00 broken put flys, 2.0 ref 96.29
  • Block, 2,500 SFRZ6 95.87/96.12 put spds, 6.0
  • +4,500 SFRN6 95.93/96.06/96.18/96.31 put condors, 2.0 ref 96.355
  • +2,000 SFRU6 96.12/96.25/96.37/96.50 put condors, 7.5 vs. 96.265/0.04%
• Treasury Options:
  • +2,600 TYN6 110 puts, 36
  • 1,800 FVM6 107/108.25 put spds ref 108-00.75
  • 2,000 FVM6 107.5/107.75 put spds, 6 ref 107-28.75
  • -1,500 FVN6 108.5/109.5 call spds, 2 ref 107-27
  • -2,000 TYQ6 108 puts, 23 ref 110-14.5
  • -4,300 wk2 TY 109.75/110.25 put spds, 4
  • over -10,000 TYM6 109/110 put spds, 11 ref 110-18.5 to -17.5
  • +3,000 TYN6 114.5 calls, 3 ref 110-08.5
  • +5,000 TYM6 111.5/112.25 call spds, 5 ref 110-15
  • -1,250 TYN6 110 straddles, 147
  • +4,300 wk2 TY 109.75/110.25 put spds, 11 ref 110-09