Notes for Mon, May 25, 2026

Memorial Day close, 10Y at 4.57, 30Y at 5.10, SOFR pinned 14bp under IORB; six auctions land into crowded shorts.

The tape, into the auction block

Markets shut today, so the brief is really a re-baseline on what Friday left us and what hits the screen when the bell rings tomorrow. Six Treasury auctions inside 48 hours into a long-end that's already cracked: Cleveland Fed nowcast pins May CPI at 4.18% y/y^[1], the term premium is climbing (10Y ACM term premium at 0.81 on 5/15^[2], the freshest print we have), and the desk read from Goldman is that macro shorts are crowded into elevated call skew^[3]. That last piece matters more than the consensus 'auction concession sets up steepener' frame. We don't think this is a clean concession trade, the bid sheet is thin, but so is the short-cover capacity if a stop-through prints.

The levels into Tuesday: 10Y closed Thursday at 4.57%^[4] after spiking to 4.67% on 5/19, 30Y at 5.10% off a 5.18% high^[5], 2Y at 4.08%^[6]. 2s10s compressed from 54bp on 5/19 to 43bp by Friday^[7], that's the bear-flatten you get when the long end finally cracks under supply weight while the front end stays pinned. The mortgage market is feeling it: 30Y mortgage at 6.51% on 5/21^[8], +15bp on the week and the highest print since early April.

Our read: take the 30Y auction tomorrow on the screws, not before. The alternate read worth weighing is the Bianco frame, real rates 100-200bp below cycle averages^[9], which says yields need to keep climbing to clear. We're rejecting that for the auction window specifically because positioning has already done a lot of that work; the squeeze risk on a soft CPI print or a one-sided dealer takedown is asymmetric here. View breaks if 30Y stops 2+ tails through and the curve bear-steepens through 55bp.

Plumbing — SOFR-IORB inverts further, RRP wakes up

Front-end mechanics are doing something interesting that the duration narrative is drowning out. SOFR printed 3.51% on 5/21 vs. IORB at 3.65%^[10], that's negative 14bp, the widest dislocation we've tracked this cycle. EFFR is at 3.62%^[11], three under IORB. Fed's RMO program has flooded the ultra-short end with liquidity, pushing EFFR to the lower bound of its corridor^[12], and the street is now positioning for the unwind. Two things squared with that: RRP take-up jumped to $24.87B on 5/20^[13] from sub-$1B levels earlier in the month, and TGA drifted to $785.9B on 5/21 from a $1.04T peak on 4/20^[14].

The TBAC piece deserves attention even though it's not priceable today. TBAC is floating a TGA repo mechanism to manage excess Treasury cash and prevent reserve depletion near LCLoR^[15]. If that actually gets Fed-Treasury coordination, the plumbing risk shifts off the Fed's corridor and onto a Treasury-coordinated drain, which is a different beast for SOFR repricing than a passive RMO pause. We're not pricing it yet, but tail-hedge sizing should account for it.

GC repo continues to grind lower, DTCC GCF UST closed Friday at 3.611^[16], down from 3.68 in late April. The seclend specials list is telling us the same story from another angle: the off-the-run 04/30/28 7Y at 5.9bp special^[17], the 2/15/56 long bond at 7.1bp^[18], paper is getting hard to source in pockets that matter for auction setup. Assumes the Fed doesn't formally signal an RMO pause this week; if they do, the SOFR-IORB gap closes fast and front-end longs get hurt.

Oil, CPI, and the consensus we're fading

Hormuz blockade relief is priced in, WTI down to roughly $91^[19], and the rates complex took the disinflation cue at face value: T-note futures rallied 20/32 on risk-on Iran chatter^[20]. We think this is being overread. Consensus is treating oil-down as a clean front-end-friendly inflation signal, but the Cleveland Fed nowcast at 4.2% for May (per a 40bp jump above April that breaches the psychological 4% threshold^[21]) collides with that narrative head-on if it prints. The alternate read, that 2y/10y unwinds steeper as risk premium evaporates on a deal close, we'd weight lower because positioning hasn't fully digested the CPI tail.

The two-sided risk into Friday: oil-led relief keeps the long end offered through auctions, but a hot May CPI on June 11 forces the cut-narrative crowd to unwind, which is where the crowded shorts get squeezed. Bianco's separate point on positioning fits, CTA/large spec longs in crude were built pre-conflict^[22], so the unwind risk is two-way there too. Assumes the Iran framework doesn't formally collapse this week; if Trump walks, oil retraces and the duration rally fades fast.

Not reading too much into today's quiet, Memorial Day, US bond market closed, the 4 PM Treasury Daily Statement is the only fresh data point and it isn't in our inventory yet. The TGA close from 5/21 ($785.9B) is our last hard number.

Sources read

8 sources read

• Commentary items: 8

Citations

1. [1]Cleveland Fed nowcast pins May CPI at 4.18% y/y (Cleveland Fed nowcast pins May CPI at 4.18% y/y) — Commentary · twitter.com
2. [2]10Y ACM term premium at 0.81 on 5/15 (0.8117) — FRED THREEFYTP10 · May 15, 2026
3. [3]macro shorts are crowded into elevated call skew (Goldman flagging crowded short positioning in macro (likely rates) into elevated call skew) — Commentary · twitter.com
4. [4]10Y closed Thursday at 4.57% (4.57) — FRED DGS10 · May 21, 2026
5. [5]30Y at 5.10% off a 5.18% high (5.10) — FRED DGS30 · May 21, 2026
6. [6]2Y at 4.08% (4.08) — FRED DGS2 · May 21, 2026
7. [7]2s10s compressed from 54bp on 5/19 to 43bp by Friday (0.43) — FRED T10Y2Y · May 22, 2026
8. [8]30Y mortgage at 6.51% on 5/21 (6.51) — FRED MORTGAGE30US · May 21, 2026
9. [9]real rates 100-200bp below cycle averages (Bianco frames real rates as 100-200bp below cycle averages) — Commentary · twitter.com
10. [10]SOFR printed 3.51% on 5/21 vs. IORB at 3.65% (3.51) — NY Fed SOFR · May 21, 2026
11. [11]EFFR is at 3.62% (3.62) — NY Fed EFFR · May 21, 2026
12. [12]Fed's RMO program has flooded the ultra-short end with liquidity, pushing EFFR to the lower bound of its corridor (Fed's RMO program has flooded the ultra-short end with liquidity, pushing EFFR to the lower bound of its corridor) — Commentary · conks.plumbing
13. [13]RRP take-up jumped to $24.87B on 5/20 (24.867) — FRED RRPONTSYD · May 20, 2026
14. [14]TGA drifted to $785.9B on 5/21 from a $1.04T peak on 4/20 (785882) — Treasury General Account · May 21, 2026
15. [15]TBAC is floating a TGA repo mechanism to manage excess Treasury cash and prevent reserve depletion near LCLoR (TBAC floating TGA repo mechanism to manage excess Treasury cash and prevent reserve depletion near LCLoR) — Commentary · conks.plumbing
16. [16]DTCC GCF UST closed Friday at 3.611 (UST 3.61100) — DTCC GCF repo · May 22, 2026
17. [17]the off-the-run 04/30/28 7Y at 5.9bp special (91282CQL8 (T 03.750 04/30/28) at 5.9 bp) — Observation · observation:seclend_observations:91282CQL8:2026-05-22
18. [18]the 2/15/56 long bond at 7.1bp (912810UR7 (T 04.750 02/15/56) at 7.1 bp) — Observation · observation:seclend_observations:912810UR7:2026-05-22
19. [19]Hormuz blockade relief is priced in, WTI down to roughly $91 (Hormuz blockade relief is priced in, WTI down 5.6% to $91) — Commentary · zerohedge.com
20. [20]T-note futures rallied 20/32 on risk-on Iran chatter (T-note futures rallying 20/32 on risk-on Iran deal chatter) — Commentary · zerohedge.com
21. [21]a 40bp jump above April that breaches the psychological 4% threshold (40bps above April and breaches the psychological 4% threshold) — Commentary · twitter.com
22. [22]CTA/large spec longs in crude were built pre-conflict (CTA/large spec longs were built pre-conflict) — Commentary · twitter.com

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