Notes for Thu, Jun 04, 2026

2s10s closed 41bp, flattest in over a year, as front end bore ADP and Hormuz risk and the new 10Y traded 61.9bp special.

The tape

2s10s closed Monday at 41bp^[1], the flattest print in over a year and the third consecutive close inside 50bp. The leg came on the front end, 2Y at 4.05% Monday's close^[2], 30Y holding 4.99%^[3], not on long-end rally. SOFR printed 3.63% Monday after 3.65% on June 1^[4], with EFFR pinned at 3.62%^[5]. GC UST repo softened to 3.68% on the 2nd from 3.685% the prior session^[6]. This isn't a Fed-path repricing in size; it's the curve absorbing hawkish labor-plus-oil drift while the long end stays bid by recession-tail and reserve-rebalancing flows.

Auction tape — the 10Y is the story

The 10Y reissue 91282CQQ7 (T 4.375 05/15/36) cleared SecLend Tuesday at 61.9bp special on $6.24B accepted^[7], up from 50bp Monday and just 11.5bp on June 1^[8]. Street is short the WI and reaching ahead of pricing, we read this as a real bid coming into the auction, not a fail-driven squeeze. The 30Y 912810UV8 trickled into specials at 7.9bp on $720mm^[9], not a story, but the long bond is also tight at the margin and that fits the duration-grab read on the long end. Bills 912797RS8 (Sep maturity) and 912797UX3 (May-27) also showed mild specialness, consistent with continued bills demand against the TGA rebuild.

Macro overlay

ADP +122k for May was the strongest in 16 months with broad-based hiring and 4.4% wage growth for stayers^[10], directionally hawkish for the front end, even allowing for noisy ADP/NFP mapping into Friday. Rabo dropped a 2026 cut, pushing September to October and adding a January 2027 cut^[11], on the read that Warsh walks into a Committee that has moved away from an easing bias and an Iran-driven energy persistence the Fed has to respect. Beige Book confirmed K-shaped: high-income resilient, middle squeezing, low-income strain rising, with energy the primary inflation driver across districts^[12]. HY at 2.71% (tightest in seven months)^[13] and IG at 0.74%^[14] say credit isn't blinking, risk-off duration demand is being priced in the long end, not in spreads.

Read into tomorrow

We carry the flattener bias into Friday's NFP. The alternate read, that this is a bull-flattener growth scare, doesn't fit when HY is at cycle tights, RRP take-up is $2.5B^[15] (a rounding error), and TGA closed Monday at $857B^[16] with Treasury still in rebuild mode rather than bills-flooding the system. View breaks if Brent fades sub-$85 without a Hormuz headline to back it (geopolitical premium evaporates, front end gets reverse-bid) or if NFP prints sub-100k and December cut odds reprice back to certainty. Assumes the on-the-run 10Y specialness normalizes after Thursday's auction settles, if 91282CQQ7 stays north of 50bp into next week, the auction-tail story gets re-written as a financing problem rather than a demand signal.

Sources read

8 sources read

• Commentary items: 8

Citations

1. [1]2s10s closed Monday at 41bp (0.41) — FRED T10Y2Y · Jun 2, 2026
2. [2]2Y at 4.05% Monday's close (4.05) — FRED DGS2 · Jun 1, 2026
3. [3]30Y holding 4.99% (4.99) — FRED DGS30 · Jun 1, 2026
4. [4]SOFR printed 3.63% Monday after 3.65% on June 1 (3.63) — NY Fed SOFR · Jun 2, 2026
5. [5]EFFR pinned at 3.62% (3.62) — NY Fed EFFR · Jun 2, 2026
6. [6]GC UST repo softened to 3.68% on the 2nd from 3.685% the prior session (UST 3.68000 vs 3.68500 on 2026-06-01) — DTCC GCF repo · Jun 2, 2026
7. [7]cleared SecLend Tuesday at 61.9bp special on $6.24B accepted (61.9 bp, $6.24B accepted) — Observation · observation:seclend_observations:91282CQQ7:2026-06-03
8. [8]just 11.5bp on June 1 (11.5 bp, $8.73B accepted) — Observation · observation:seclend_observations:91282CQQ7:2026-06-01
9. [9]The 30Y 912810UV8 trickled into specials at 7.9bp on $720mm (7.9 bp, $0.72B accepted) — Observation · observation:seclend_observations:912810UV8:2026-06-03
10. [10]ADP +122k for May was the strongest in 16 months with broad-based hiring and 4.4% wage growth for stayers (ADP +122k (May), strongest in 16mo, with broad-based hiring and steady 4.4% YoY wage growth for job-stayers) — Commentary · zerohedge.com
11. [11]Rabo dropped a 2026 cut, pushing September to October and adding a January 2027 cut (Instead of a rate cut in September 2026 and another in December 2026, we now forecast the first cut in October 2026 and the second in January 2027.) — Commentary · zerohedge.com
12. [12]Beige Book confirmed K-shaped: high-income resilient, middle squeezing, low-income strain rising, with energy the primary inflation driver across districts (higher-income households remained resilient... middle-income households were described as squeezing more life out of every dollar... low-income consumers showed greater financial strain... energy-related costs tied to the conflict in the Middle East were the primary driver of inflationary pressures) — Commentary · zerohedge.com
13. [13]HY at 2.71% (tightest in seven months) (2.71) — FRED BAMLH0A0HYM2 · Jun 2, 2026
14. [14]IG at 0.74% (0.74) — FRED BAMLC0A0CM · Jun 2, 2026
15. [15]RRP take-up is $2.5B (2.502) — FRED RRPONTSYD · Jun 2, 2026
16. [16]TGA closed Monday at $857B ($856842M) — Treasury General Account · Jun 1, 2026

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