US TSYS/SUPPLY: Preview 10Y Auction: Highest Yield Since January 2025

19,500 TUQ6 103 calls, 4.5 ref 102-27.75

Latest opinion polling shows, like others conducted after the appeals court ruling last week, the far-right Rassemblement National (National Rally, RN)'s Marine Le Pen sitting as the frontrunner to win the presidency in 2027. The Elabe poll, conducted 9-10 July, shows Le Pen as a certainty to make a second-round run-off, and likely defeat each of her most likely challengers. 

• The identity of Le Pen's run-off opponent remains dependent on who runs in the first round:
  • The poll shows former PM Edouard Philippe from the centre-right Horizons making the run-off when he is the sole candidate from the Macronist Ensemble bloc, whether MEP Raphael Glucksmann or former President Francois Hollande runs for the centre-left.
  • Former PM Gabriel Attal (Renaissance) makes the run-off if he is the sole Ensemble candidate and the centre-left opts for Hollande as its candidate.
  • Far-left La France Insoumise (France Unbowed, LFI) leader Jean-Luc Mélenchon makes the run-off if both Philippe and Attal run, or if Attal and Glucksmann run.
  • It should be noted that, apart from the scenario of Philippe and Hollande running, each of the potential opponents for Le Pen sits within the margin of error.
• The Elabe poll shows the same as other pollsters in the hypothetical second-round contests: Le Pen defeating Mélenchon comfortably, but Attal and Philippe by narrower margins.
• The Philippe camp is already looking to define its battle against Le Pen on the economy. Politico reports pro-Philippe lawmakers looking to highlight Le Pen's more left-leaning economic stances on pension reform and debt reduction as they look to avoid conservative support swinging to the far right. 

Chart 1. First Round Opinion Polling by Scenario, % (LHS) and Second Round Hypothetical Polling, % (RHS)

• With market pricing overweighting hawkish Fed tail risks once more, red/green SOFR disinversion has paused. While a sustained energy breakout remains a key risk for renewed inversion, any hawkish alignment between this week's data releases and Fed communication could also provide the necessary momentum to force a swift retest of the lows in red/greens.
• The 1Y1Y vs. EFFR spread has risen ~10bp in recent days, hitting a cycle high of 45bp, pricing in more persistent geopolitical/energy risk premium driven by renewed US/Iran tensions and acting as a brake on red/green disinversion.
• Under Chair Warsh, official Fed forward guidance has turned intentionally opaque, a shift consistent with higher intraday realized volatility around data releases.
• Consensus for June CPI tomorrow expects a softer headline via lower gasoline prices, with core maintaining the May monthly pace. However, with Warsh's June FOMC presser having established a strong commitment to price stability, any core upside surprise would likely trigger asymmetric front-end selling.
• Warsh is unlikely to offer directional guidance via his testimony tomorrow, but given his unyielding message in June, it would be surprising if he watered down his more hawkish rhetoric now.