US 10YR FUTURE TECHS: (U5) Bull Cycle Remains In Play

We don't usually cover floating-rate note auctions, but Wednesday's $28B 2Y FRN auction marked a solid rebound from April's new $30B sale which was by most accounts the weakest in 8 months amid tariff-related volatility.

• The primary dealer takeup fell to a relatively typical 34.9%, versus 49.6% in April which had been the highest since August 2023. Indirects took 63.1%, vs 48.6% prior.
• Bid/cover rose to 2.95x from 2.69x in April (which was also weakest since Aug 2023).
• The High Discount Margin ticked down to 0.144% from April's post-November 2024 high of 0.16%.

House Speaker Mike Johnson (R-LA) has issued a statement on X promising to codify the findings of Elon Musk’s Department of Government Efficiency. The statement appears a direct response to Musk’s interview yesterday panning the Republican tax and spending bill.

• Johnson: “The House is eager and ready to act on DOGE’s findings so we can deliver even more cuts to big government that President Trump wants and the American people demand.”
• Johnson says the House will do that in two ways: “1. When the White House sends its rescissions package to the House, we will act quickly by passing legislation to codify the cuts. 2. The House will use the appropriations process to swiftly implement President Trump’s 2026 budget.”
• Musk told CBS yesterday: “I was disappointed to see the massive spending bill, frankly, which increases the budget deficit … A bill can be big or it can be beautiful. But I don’t know if it can be both.”
• MNI’s Political Risk team noted in today’s US Daily Brief that Musk’s comments could embolden Republican fiscal hawks, already concerned with the deficit implications of the bill, to take a harder line on spending cuts.
• Several key senators appear to endorse Musk’s position, including Senator Mike Lee (R-UT) who said in response to a Fox News report of Musk’s comments: “This bill isn’t a done deal yet. There’s still time to fix it. The Senate version will be more aggressive. It can, it must, and it will be. Or it won’t pass.”

• A brief return to 5.00% for the 30Y yield and the 10Y yield coming just shy of 4.50% has elicited a quick bid in Treasuries, currently at 4.991% and 4.487% respectively.
• Treasuries are still close to recent session lows though in what’s been a light session for headlines.
• TYU5 trades at 110-06 (-10+) having touched 110-03+, back at the lower end of yesterday’s range. Resistance is seen at 110-21+ (50-day EMA) before a key 110-23 (May 16 high) but the bear cycle remains in play with support at 109-12+ (May 22 low).
• The earlier firming starting a little before 0900ET had coincided with a Navarro op-ed in The Hill that pushed back on the bond market reaction to Trump’s reconciliation bill, although had appeared more in keeping with a broader bid that saw further BTP outperformance (which has since been pared).
• Some recent larger flow: TU (14.4k) suggested buyer followed more recently by TU (5k) suggested seller & FV(10k)/WN(2.4k) suggested steepener.
• Quarterly roll is around 90% for most major benchmarks, including TY a little below.
• Ahead sees a 5Y auction (1300ET) before the FOMC minutes (1400ET).
• Yesterday’s 2Y auction was solid, trading through by 1bp. Last month’s 5Y traded through by 1bp and the bid-to-cover ticked up after what had previously been the lowest in nine auctions.