Notes for Thu, May 28, 2026

Front-end relief on 0.24% core, but 3.8% 6m annualized and a Hormuz tail keep us paid into payrolls.

Take

We don't think today's tape is the disinflation green light some are calling it. Core PCE printed 0.24% m/m versus 0.28% consensus^[1], a five-month low on the monthly, but the 3-month and 6-month annualized runs both sit at 3.8% with YoY at 3.3%, the 6m at a three-year high^[2]. That is one soft monthly inside a still-sticky trend, not a restart of disinflation.

The tactical move fits a relief squeeze, not a regime shift. 10Y closed at 4.50%^[3] versus 4.56% Friday, 2Y at 4.01%^[4] from 4.13%, 30Y at 5.03%^[5] from 5.07%, a clean bull-steepener with 2s10s widening to 49bp^[6]. Personal income surprised flat versus +0.4% expected^[7], which adds a labor-softening tilt for those who want it, but spending held inline and the savings rate collapse to 2.6% reads as balance-sheet drawdown^[8] more than demand cracking. Cook's framing earlier in the week, cuts without further tightening as baseline, hikes live if disinflation stalls^[9], sits right on top of this data: not a dovish trigger.

We stay paid the front end into next Friday's payrolls. The bull-steepener has legs only if jobs miss hard or Brent breaks sub-$85 cleanly; absent that, the 3m/6m annualized prints don't give the Fed cover to validate July-cut pricing. Alternate read we weighed and rejected: Cook plus soft monthly equals July live again, we fade it because the medium-term momentum hasn't actually rolled and Hormuz is still a one-headline tail risk. View breaks if next week's NFP prints sub-100k with downward revisions, or if 5s/30s flattens through 75bp on a fresh hawkish Fed speaker.

Auction week — 7Y saves the tone, but the belly is still indigesting

Today's 7Y was the strong print of the week: stopped through WI by 1bp at 4.290%, indirects 78.39% (third highest on record), with directs cratering to 11.19%, dealers absorbed only 10.4%^[10]. The foreign bid is doing all the work, consistent with reserve-drawdown flow reversing out of EM. Clean tone, but it's a foreign-bid story, not a domestic real-money story.

Yesterday's 5Y stopped at 4.182% with a 0.1bp tail, the 12th consecutive tail, longest on record^[11]. Indirects 74.85% (highest since May '25) cushioned the print, but dealers had to take 12.8%^[12]. The streak says persistent supply indigestion at this part of the curve at these yields, not strength. We're treating today's 7Y as the exception, not the trend reversal; if next month's 5Y prints another tail, the belly cheapens further regardless of 10Y direction.

Funding and balance sheet — quiet

Front-end plumbing reads benign. SOFR fixed at 3.63% on 5/27^[13], EFFR at 3.62%^[14], IORB at 3.65%^[15], SOFR running 2bp below IORB, no stress signal. GCF UST traded 3.655% on 5/27^[16]. RRP at $1.85B on 5/27^[17], effectively zero, the facility is decoration at this point.

TGA rebuilt to $881.3B on 5/26 from the $758.8B low on 5/15^[18] as bill issuance refilled the account; reserves at $3.13T on 5/20^[19], up from the $2.90T trough on 4/22. Reserve plumbing is fine through month-end on current trajectory. SOMA seclend specials are sub-stress: top specials today are short bills at 5 - 6 bp^[20], well inside any month-end-style squeeze. Assumes Treasury holds the May refunding bill-issuance pace; if TGA target shifts higher into mid-June, watch for SOFR-IORB compression.

Sources read

8 sources read

• Commentary items: 8

Citations

1. [1]Core PCE printed 0.24% m/m versus 0.28% consensus (Core PCE came in softer than consensus (0.24% vs. 0.28% forecast)) — Commentary · twitter.com
2. [2]3-month and 6-month annualized runs both sit at 3.8% with YoY at 3.3%, the 6m at a three-year high (3-month at 3.8%, 6-month at 3.8% (3-year high), 12-month at 3.3%) — Commentary · twitter.com
3. [3]10Y closed at 4.50% (4.50) — FRED DGS10 · May 26, 2026
4. [4]2Y at 4.01% (4.01) — FRED DGS2 · May 26, 2026
5. [5]30Y at 5.03% (5.03) — FRED DGS30 · May 26, 2026
6. [6]2s10s widening to 49bp (0.49) — FRED T10Y2Y · May 26, 2026
7. [7]Personal income surprised flat versus +0.4% expected (Personal income flat vs. +0.4% expected, first miss in the sequence.) — Commentary · twitter.com
8. [8]savings rate collapse to 2.6% reads as balance-sheet drawdown (Savings rate at 2.6%, near the 2005 trough, with spending outpacing income signals consumers are drawing down buffers fast.) — Commentary · twitter.com
9. [9]Cook's framing earlier in the week, cuts without further tightening as baseline, hikes live if disinflation stalls (Cook signals baseline case is cuts without tightening, but sets clear trigger, if disinflation stalls, hikes are on the table.) — Commentary · twitter.com
10. [10]stopped through WI by 1bp at 4.290%, indirects 78.39% (third highest on record), with directs cratering to 11.19%, dealers absorbed only 10.4% (7Y auction prints stellar: 2.518 b/c, 78.39% indirects (3rd highest on record), stopped through WI by 1bp. Foreign demand surge suggests EM reserve-drawdown flow from Mar - Apr has reversed; directs cratered to 11.19%) — Commentary · zerohedge.com
11. [11]Yesterday's 5Y stopped at 4.182% with a 0.1bp tail, the 12th consecutive tail, longest on record (5Y auction solid on foreign bid (Indirects 74.85%, highest since May '25), but 12th consecutive tail at 0.1bp signals persistent supply pressure) — Commentary · zerohedge.com
12. [12]Indirects 74.85% (highest since May '25) cushioned the print, but dealers had to take 12.8% (Indirects 74.85%, highest since May '25... Dealers forced to absorb 12.8%) — Commentary · zerohedge.com
13. [13]SOFR fixed at 3.63% on 5/27 (3.63) — NY Fed SOFR · May 27, 2026
14. [14]EFFR at 3.62% (3.62) — NY Fed EFFR · May 27, 2026
15. [15]IORB at 3.65% (3.65) — FRED IORB · May 28, 2026
16. [16]GCF UST traded 3.655% on 5/27 (UST 3.65500) — DTCC GCF repo · May 27, 2026
17. [17]RRP at $1.85B on 5/27 (1.853) — FRED RRPONTSYD · May 27, 2026
18. [18]TGA rebuilt to $881.3B on 5/26 from the $758.8B low on 5/15 (881329) — Treasury General Account · May 26, 2026
19. [19]reserves at $3.13T on 5/20 (3129562) — FRED WRESBAL · May 20, 2026
20. [20]top specials today are short bills at 5 - 6 bp (912797UX3 (B 05/13/27) at 5.9 bp) — Observation · observation:seclend_observations:912797UX3:2026-05-28

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