Notes for Thu, May 14, 2026

Ugly 30Y plus 3.8% CPI plus Warsh confirmed; we lean 5s30s steeper, front end still glassy per plumbing.

Overnight take

We're leaning into a bear-steepener. Yesterday's 30Y refunding tailed 0.5bp at a 5.046% high yield^[1], the first 5%+ coupon since August 2007^[2], and dealers were left holding 11.7% on a 2.303 bid-to-cover, the weakest since November 2025^[3]. Stack that against April CPI accelerating to 3.8% YoY, the hottest print since May 2023^[4], and a Warsh confirmation the long end is reading as balance-sheet-skeptical, and supply has every reason to keep cheapening duration. We're not chasing; we're funding 5s30s steepeners and taking the carry.

Alternate read worth airing: if Warsh's first presser lands genuinely restrictive on the policy rate (not just the balance sheet), the front end joins the move and we get a bear-flattener instead. We weight against it because the December '26 SOFR-FF basis is only hovering 4-5bp and the plumbing isn't telling the same story the auction tape is. View breaks on a stop-through at the next coupon or a clean SOFR-IORB inversion into month-end. Assumes Treasury keeps the cash-management buyback pace and the Fed doesn't pre-announce a runoff acceleration.

The auction tape

$25BN 30Y priced at a high yield of 5.046%, up sharply from 4.876% in April, and tailed the 5.041% When-Issued by half a basis point, the second consecutive tail following four stop-throughs^[5]. Bid-to-cover 2.303, down from 2.385 and below the 2.43 six-auction average^[6]. Indirects took 66.6%, Directs 21.74%, leaving dealers with 11.7%^[7]. The 5% coupon comp to August 2007 is the headline ZeroHedge keeps reaching for; we'd flag the macro setup, sticky core plus an incoming Chair on record wanting a smaller balance sheet, as the actual driver, not algo deleveraging. Worth noting: SOMA seclend shows the long bond (912810UN6, 4.875% 08/15/45) trading 6.4bp special^[8] at yesterday's auction, consistent with dealers reluctant to part with on-the-runs into a still-heavy calendar. Bills are also showing pockets of specialness in the 8/13/26 and 9/8/26 issues^[18], which tracks with auction-week funding pressure rather than anything structural.

Plumbing's not flashing yet

Front end is the tell on whether this is repricing or rupture. Per Conks, peace at the ultra-short-end remains intact: SOFR-FF basis is only hovering around 4-5bp at the December '26 tenor^[9], and the Fed-Treasury duet, roughly $200B of RMO purchases against the same in Treasury cash-management buybacks^[10], has blunted dealer warehousing pressure on a primary-dealer net long that Conks puts north of $500B^[11]. We read the long-end selloff as supply-and-positioning, not funding stress, yet. The path that flips it: Warsh leaning into balance-sheet runoff as early as December^[12], which forces dealers to fund a bigger book and applies upward pressure to SOFR. Not today's problem, but it's the December problem, and the curve will start pricing it before he says it.

Warsh and the policy path

Senate confirmed Warsh in the slimmest confirmation margin ever for a head of a central bank, with Fetterman the only Democrat to cross^[13]. He chairs his first FOMC June 16-17^[14]. The street read on his playbook per LPL: restraint, humility, less forward guidance, more reliance on incoming data, plus a stated bias toward scaling back balance-sheet use^[15]. April core at 2.8% and headline at 3.8% give him no cover to cut in June even if he wanted to, Bannon, not exactly a dove, is already telegraphing no June cut to the base^[16]. Futures have moved with him: no 2026 cuts priced and a growing chunk of the strip floating a 2027 hike^[17]. We're aligned with the no-cut tape but skeptical of the hike pricing; the supply-absorption duet between Treasury and the Fed suggests the political ceiling on hikes is lower than the curve thinks, which is exactly why we like the steepener over an outright duration short.

Sources read

8 sources read

• Commentary items: 8

Citations

1. [1]5.046% high yield (The auction priced at a high yield of 5.046%, up sharply from 4.876% in April, and tailed the 5.041% When Issued by 0.5bps) — Commentary · zerohedge.com
2. [2]the first 5%+ coupon since August 2007 (first 30Y auction to print with a high yield above 5%, and a coupon of 5%, since August 2007) — Commentary · zerohedge.com
3. [3]dealers were left holding 11.7% on a 2.303 bid-to-cover, the weakest since November 2025 (bid to cover was 2.303, down from 2.385, below the 2.43 six auction average and the lowest since Nob 2025) — Commentary · zerohedge.com
4. [4]April CPI accelerating to 3.8% YoY, the hottest print since May 2023 (April's annual consumer inflation rate accelerated to 3.8 percent, the highest level since May 2023) — Commentary · zerohedge.com
5. [5]up sharply from 4.876% in April, and tailed the 5.041% When-Issued by half a basis point, the second consecutive tail following four stop-throughs (up sharply from 4.876% in April, and tailed the 5.041% When Issued by 0.5bps, the second consecutive tail following 4 stop-throughs) — Commentary · zerohedge.com
6. [6]Bid-to-cover 2.303, down from 2.385 and below the 2.43 six-auction average (bid to cover was 2.303, down from 2.385, below the 2.43 six auction average) — Commentary · zerohedge.com
7. [7]Indirects took 66.6%, Directs 21.74%, leaving dealers with 11.7% (Indirects taking down 66.6%, up from 64.1% in April and just below the 66.8% recent average. And with Directs awarded 21.74%, Dealers were left with 11.7%) — Commentary · zerohedge.com
8. [8]912810UN6, 4.875% 08/15/45) trading 6.4bp special (912810UN6 (T 04.875 08/15/45) at 6.4 bp) — Observation · observation:seclend_observations:912810UN6:2026-05-13
9. [9]SOFR-FF basis is only hovering around 4-5bp at the December '26 tenor (Year-end SOFR-FF (Dec'26), despite these impending pressures, is only hovering around a 4-5bps basis) — Commentary · conks.plumbing
10. [10]roughly $200B of RMO purchases against the same in Treasury cash-management buybacks (the Fed has bought ~$200b via RMPs while Bessent's Treasury has vacuumed the same amount of short-end supply via CMBs) — Commentary · conks.plumbing
11. [11]primary-dealer net long that Conks puts north of $500B (primary dealers are harboring a record net long UST position of over $500 billion) — Commentary · conks.plumbing
12. [12]Warsh leaning into balance-sheet runoff as early as December (alongside an attempt to reduce the Fed's balance sheet as early as December) — Commentary · conks.plumbing
13. [13]slimmest confirmation margin ever for a head of a central bank, with Fetterman the only Democrat to cross (slimmest confirmation margin ever for a head of a central bank... Sen. John Fetterman was the only Democrat to support Warsh) — Commentary · zerohedge.com
14. [14]He chairs his first FOMC June 16-17 (Warsh would head the June 16 to June 17 Federal Open Market Committee policy meeting) — Commentary · zerohedge.com
15. [15]restraint, humility, less forward guidance, more reliance on incoming data, plus a stated bias toward scaling back balance-sheet use (Warsh has consistently argued for restraint, humility, and a greater reliance on incoming data... Warsh has stated that the Fed should scale back its balance sheet use) — Commentary · zerohedge.com
16. [16]Bannon, not exactly a dove, is already telegraphing no June cut to the base (fresh inflation data made it 'highly unlikely' that Warsh would have 'the flexibility to cut rates in June') — Commentary · zerohedge.com
17. [17]no 2026 cuts priced and a growing chunk of the strip floating a 2027 hike (Investors have priced in the expectation that the Fed will not lower interest rates at all this year. A growing chorus of traders has started forecasting a rate hike sometime in 2027) — Commentary · zerohedge.com
18. [18]8/13/26 and 9/8/26 issues (912797TW7 (B 08/13/26) at 7.2 bp) — Observation · observation:seclend_observations:912797TW7:2026-05-13

Generated by Short Rates Desk. Informational only. Not investment advice.