Short Rates Desk
Fri, May 15, 2026

Notes for Fri, May 15, 2026

Morning brief

· generated 07:44 ET

Stay paid in the front end, cuts are dead, hike optionality is alive

2Y at 4.00% with hot PPI, sticky retail sales, and ~37% hike odds priced, we'd stay paid in whites/reds and fade any bid.

Front end: stay paid

We're staying paid in the front end into Friday's open. 2Y closed Tuesday at 4.00%[1], up 29bp from 3.71% on April 17[2], and the move has fuel under it. April retail sales control group printed +0.5% MoM[3], PPI ran +1.4% MoM and +6.0% YoY, the largest yearly print since December 2022[4], and the strip has rotated from pricing cuts to roughly 37% odds of a hike by year-end[5]. Warsh is confirmed and Collins has floated tightening if tariff pass-through broadens[6]. The cut-pricing trade is dead until labor cracks; claims at 211k aren't it[7].

The alt read, that this is a Treasury-supply / term-premium story, not Fed-path, doesn't fit our tape. 10Y term premium sat at 0.70 on May 8[8], not running away, and the move is concentrated in the belly: 5Y up 28bp to 4.12% from 3.84% on April 17[9], in line with 2Y[10]. That's policy repricing, not duration. View breaks if next PCE core prints sub-2.8% or if Paulson telegraphs dovish before June SEP; assumes Trump-Xi de-escalation doesn't unwind the oil/tariff inflation channel hard enough to flip the regime.

Curve and dispersion

The bear-steepener is real but uneven. 2s10s widened to 48bp Wednesday after compressing to 46bp Tuesday[12][11]; 30Y closed at 5.03%[13], the highest in our window, with UK 30Y gilts at 5.74%, highest since 1997[14], providing global cover for long-end weakness. The Amarnath read on the June SEP, median dot flat, four members in the hike camp[15], fits current strip pricing if Paulson holds dovish. If she flips, the front end has another 10 - 15bp to give before it's clean.

We don't read this as a growth-scare bull-flattener wearing bear-steepener clothes; a growth-scare tape would have front-end OIS rallying and SOFR is anchored at 3.59% with EFFR a steady 3.63%[18]. Front-end conviction is in the right place.

Plumbing: benign, not the trade

Plumbing isn't the story this week. SOFR fixed at 3.59% Wednesday[16], six bp under IORB at 3.65%[17], the desk's sweet spot. GCF UST repo dropped to 3.595% on May 13 from 3.642% Tuesday[20][19], just bills-settlement noise; RRP take-up popped to $3.72bn[21] but that's still rounding error. TGA sat at $844bn on May 12[22], down from the $1.04tn peak on April 20[23] as tax-receipt flows reverse, and reserves jumped to $3.03tn on May 6[24], leaving the ~$250bn cushion above LCLoR that TBAC flagged overnight[25] intact. The TGA-repo mechanism floated by TBAC is structurally interesting but pricing-irrelevant today, we'd care only if reserves slip another $100bn into the CCLR migration window.

Newest bills show standard richness: the just-auctioned 5/13/27 issue is on at 7.0bp specials[26] alongside B 04/15/27 at 7.0bp. Reach-for-fresh collateral, not stress.

Sources read

8 sources read

  • Commentary items: 8

Citations

  1. [1]2Y closed Tuesday at 4.00% (4.00) — FRED DGS2 · May 12, 2026
  2. [2]up 29bp from 3.71% on April 17 (3.71) — FRED DGS2 · Apr 17, 2026
  3. [3]April retail sales control group printed +0.5% MoM (April retail sales beat consensus at +0.5% MoM with 4.9% YoY, strongest since Aug 2025, and Control Group also beat) — Commentary · zerohedge.com
  4. [4]PPI ran +1.4% MoM and +6.0% YoY, the largest yearly print since December 2022 (PPI +1.4% vs 0.5% expected, 6% YoY, largest since Dec '22) — Commentary · zerohedge.com
  5. [5]roughly 37% odds of a hike by year-end (market now pricing 37% prob of hike by YE vs. consensus cuts weeks ago) — Commentary · zerohedge.com
  6. [6]Warsh is confirmed and Collins has floated tightening if tariff pass-through broadens (Warsh confirmed as Powell's successor, Collins flagged potential tightening if tariff pass-through broadens) — Commentary · zerohedge.com
  7. [7]claims at 211k aren't it (Claims at 211k beat expectations slightly but remain structurally low) — Commentary · zerohedge.com
  8. [8]10Y term premium sat at 0.70 on May 8 (0.6999) — FRED THREEFYTP10 · May 8, 2026
  9. [9]5Y up 28bp to 4.12% from 3.84% on April 17 (4.12) — FRED DGS5 · May 12, 2026
  10. [10]in line with 2Y (3.84) — FRED DGS5 · Apr 17, 2026
  11. [11]2s10s widened to 48bp Wednesday after compressing to 46bp Tuesday (0.48) — FRED T10Y2Y · May 13, 2026
  12. [12]compressing to 46bp Tuesday (0.46) — FRED T10Y2Y · May 12, 2026
  13. [13]30Y closed at 5.03% (5.03) — FRED DGS30 · May 12, 2026
  14. [14]UK 30Y gilts at 5.74%, highest since 1997 (UK 30-year gilts at 5.74% (highest since 1997)) — Commentary · zerohedge.com
  15. [15]median dot flat, four members in the hike camp (pushing the median 2026 dot to flat and four members into hike camp at June SEP) — Commentary · employamerica.org
  16. [16]SOFR fixed at 3.59% Wednesday (3.59) — NY Fed SOFR · May 13, 2026
  17. [17]IORB at 3.65% (3.65) — FRED IORB · May 14, 2026
  18. [18]EFFR a steady 3.63% (3.63) — NY Fed EFFR · May 13, 2026
  19. [19]GCF UST repo dropped to 3.595% on May 13 from 3.642% Tuesday (UST 3.59500) — DTCC GCF repo · May 13, 2026
  20. [20]3.642% Tuesday (UST 3.64200) — DTCC GCF repo · May 12, 2026
  21. [21]RRP take-up popped to $3.72bn (3.719) — FRED RRPONTSYD · May 13, 2026
  22. [22]TGA sat at $844bn on May 12 ($844036M) — Treasury General Account · May 12, 2026
  23. [23]the $1.04tn peak on April 20 ($1038035M) — Treasury General Account · Apr 20, 2026
  24. [24]reserves jumped to $3.03tn on May 6 (3032588) — FRED WRESBAL · May 6, 2026
  25. [25]the ~$250bn cushion above LCLoR that TBAC flagged overnight (~$250bn cushion above LCLoR, TGA swings can be multi-billion, and post-QT reserves are tight enough) — Commentary · conks.plumbing
  26. [26]the just-auctioned 5/13/27 issue is on at 7.0bp specials (912797UX3 (B 05/13/27) at 7.0 bp) — Observation · observation:seclend_observations:912797UX3:2026-05-14

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

Close brief

· generated 16:42 ET

Long-end bear-steepens on Hormuz; front-end funding richens, energy/term-premium shock, not a growth scare.

Duration sells hard on oil and geopolitical premium while SOFR drifts under IORB; we read it as inflation repricing, not curve-wide cut repricing.

Tape — long end did the work

30Y closed 5.03% on Wednesday's official tape[1]; desk saw the bond near 5.10% intraday and 10Y testing 4.50 - 4.54%[2] per the Goldman cross-asset note and Academy's read. WTI above $100/bbl with Hormuz still shut[3] is the proximate driver, this is a term-premium and inflation-risk repricing, not a flight-to-quality bid.

We read it as bear-steepener: short belly/long, neutral front. The alternate read, growth-scare bull-flattener disguised as long-end selling, doesn't fit the cross-asset. High-yield OAS sat at 276 bp Wednesday, tighter on the week[4], and equity weakness was gamma-driven into expiry. View breaks if Hormuz reopens and Brent settles back near $90; we'd cover long-end shorts into a clean de-escalation headline.

Front end is the tell

SOFR printed 3.56% on 5/14[5], 9 bp under IORB at 3.65%[6]. GCF UST repo at 3.582% same day[7], also clearly sub-IORB. RRP take-up $2.03B on 5/14[8], basically empty but not flatlining. SOMA Treasury holdings (TREAST) ticked to $4,450B[9] from $4,434B a week prior[10], MBS runoff continues at $1,981B (WSHOMCB unchanged on the week)[11], reinvestment of MBS paydowns into bills/coupons is starting to bend the asset mix.

TGA drew to $807B on 5/13[12] from $844B on 5/12[13], a sizeable cash injection that partly explains the SOFR softening. If TGA rebuilds into next week's settlements we'd expect SOFR-IORB to compress; if not, reserves stay flush and the front end stays well-funded through month-end. Specials list is pedestrian, top is the B 05/13/27 at 7.0 bp[14], nothing meaningfully tight. Assumes Treasury holds current bill-issuance cadence.

Warsh in, Miran out

Miran's resignation and Warsh's swearing-in[16] is the procedural news. The street framing, that Miran's exit strips ~100 bp of dovishness from the Committee[15], overstates the arithmetic: Miran was 2.625% by year-end vs roughly a 3.42% SEP median, so the gap is ~80 bp, and dot arithmetic doesn't move cleanly off one departure. The 8-governor / 7-seat pinch resolved itself with Miran's exit, so don't overread governance disruption either.

What matters: Warsh's first speeches set the reaction-function read for H2 cuts. He's reputationally hawkish but was in the room for the 2008 - 09 QE introduction, so we'd fade the lazy hawk-by-association trade. June 17 is a non-event regardless. Front-end cut pricing should hold until Warsh's first podium.

Into Monday

Short duration in the belly-long carries into the weekend. The hot IP print (0.7% vs 0.3% expected, utilization 76.1%)[17] is a small cut-negative tap, not a regime shifter, IP and Empire are second-tier alongside CPI/payrolls. Xi/Trump summit delivered managed coexistence, not catalysts: new Trade and Investment Boards, a Boeing 200-jet order[18], ag/energy commitments, nothing on H200 chips, rare earths, or Taiwan.

The real binary is Iran: if Trump escalates or Hormuz stays shut another week, 30Y can push 5.15 - 5.20%; a clean de-escalation headline unwinds 5 - 10 bp at the long end. Housing data ticked supportive (median sale price +2.4% YoY, pending sales at Feb-2023 highs[19]) but long-end repricing risk from a sticky inflation print matters more for our book than housing reflation.

Sources read

8 sources read

  • Commentary items: 8

Citations

  1. [1]30Y closed 5.03% on Wednesday's official tape (5.03) — FRED DGS30 · May 13, 2026
  2. [2]10Y testing 4.50 - 4.54% (10yr yields at 4.54% on Iran war stalemate + Hormuz closure indefinitely extended) — Commentary · zerohedge.com
  3. [3]WTI above $100/bbl with Hormuz still shut (Oil prices are up significantly (WTI >$100)) — Commentary · zerohedge.com
  4. [4]High-yield OAS sat at 276 bp Wednesday, tighter on the week (2.76) — FRED BAMLH0A0HYM2 · May 14, 2026
  5. [5]SOFR printed 3.56% on 5/14 (3.56000) — NY Fed SOFR · May 14, 2026
  6. [6]IORB at 3.65% (3.65) — FRED IORB · May 15, 2026
  7. [7]GCF UST repo at 3.582% same day (UST 4.33200 / MBS 4.35700, corrected: UST 3.58200) — DTCC GCF repo · May 14, 2026
  8. [8]RRP take-up $2.03B on 5/14 (2.034) — FRED RRPONTSYD · May 14, 2026
  9. [9]SOMA Treasury holdings (TREAST) ticked to $4,450B (4450235) — FRED TREAST · May 13, 2026
  10. [10]from $4,434B a week prior (4434161) — FRED TREAST · May 6, 2026
  11. [11]$1,981B (WSHOMCB unchanged on the week) (1981060) — FRED WSHOMCB · May 13, 2026
  12. [12]TGA drew to $807B on 5/13 (807420) — Treasury General Account · May 13, 2026
  13. [13]from $844B on 5/12 (844036) — Treasury General Account · May 12, 2026
  14. [14]top is the B 05/13/27 at 7.0 bp (912797UX3 (B 05/13/27) at 7.0 bp) — Observation · observation:seclend_observations:912797UX3:2026-05-15
  15. [15]Miran's exit strips ~100 bp of dovishness from the Committee (Miran's exit strips 100bps of dovishness from the Committee, he was projecting 2.625% by year-end, nearly 140bps below median) — Commentary · zerohedge.com
  16. [16]Warsh's swearing-in (Warsh sworn-in creates immediate Fed governance pinch) — Commentary · zerohedge.com
  17. [17]hot IP print (0.7% vs 0.3% expected, utilization 76.1%) (Hot IP print (0.7% vs 0.3% exp, largest since Feb 2025) with capacity utilization at 76.1%) — Commentary · zerohedge.com
  18. [18]new Trade and Investment Boards, a Boeing 200-jet order (structural wins (trade/investment boards, Boeing 200-unit order, ag/energy commitments)) — Commentary · zerohedge.com
  19. [19]median sale price +2.4% YoY, pending sales at Feb-2023 highs (median prices up 2.4% YoY (largest since Mar 2025), pending sales at highest level since Feb 2023) — Commentary · zerohedge.com

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