Notes for Mon, Jun 08, 2026

We're leaving short duration and long the flattener into Wednesday's CPI, payroll repricing held, oil bid faded fast.

The close

We're leaving the desk flatter and still short duration into CPI. 2s10s closed at 38 bp on Friday's tape, down from 42 the prior session^[1], and the front end sits where post-payroll repricing parked it, DGS2 at 4.05%^[2], DGS10 at 4.47% on Thursday's print^[3]. The intraday narrative was Iran/Israel; the actual positioning trade was supply. Six auctions on/within two days of today, CPI Wednesday, and a new long bond that's already trading deep-special, that's the order book PMs should be reading off, not Brent ticks.

Front end took the brunt, and held

Friday's NFP beat with positive revisions pulled forward roughly 50bps of Fed tightening into year-end^[4], and the front end never gave it back. SOFR printed 3.63% on the latest publish^[5], sitting 2 bp below IORB at 3.65%^[6], no plumbing stress, just a benchmark anchored to a hawkish Fed path. Our read: a hot CPI Wednesday, DB at 4.3% headline, GS at 4.17%, with core firm^[7], extends the 2Y selloff and flattens 2s10s through 30 bp. The bull-flattener-on-a-miss is the alternate read we weighed and rejected: NY Fed survey showed 1Y inflation expectations down 18bp but driven entirely by gas, with rent and food repricing the wrong way^[8]. The Fed can't take a dovish signal off a gasoline print.

Auction tape: 30Y specialness is the tell

The May 30Y (91282CQQ7) traded 23.8 bp special at today's SOMA op^[9], after printing 61.9 bp on 6/3^[10] and holding above 50 bp through the week. That's sustained real-money demand at the long end even as the headline 30Y hovers near 4.97%^[11], duration getting picked up by end users into supply, not pushed out by them. The new bill (912797UX3, B 05/13/27) cleared 147.6 bp special^[12], fresh-issue overhang from this week's calendar that should self-clear once distribution finishes. Net: the curve is being shaped by who's buying the long end into supply, not by Brent.

Geopolitics — fade the front-end relief rally

Brent +5% to $97.83^[13] on Houthi Red Sea ban talk and the Israel-Iran exchange, with 10Y settling near 4.53% intraday on de-escalation framing^[14]. We'd fade the bid for duration here. If energy sticks above $95 WTI, the inflation impulse keeps Fed-cut repricing capped and pushes 2Y back toward 4.10 - 4.15. View breaks if Hormuz or Bab-el-Mandeb actually clogs, sustained reroutes flip this from headline risk to realized supply shock, long-end term premium rebuilds, and the flattener comes off. Until then, a dual-chokepoint scenario is a watch item, not a trade.

Into tomorrow

Stay short 2Y, hold the flattener, keep a small crude overlay as the cleanest geopolitical hedge. Assumes Treasury holds the bill-issuance pace into the next refunding, TGA sat at $844.5B on 6/4^[15], well off the late-May $903.9B high^[16], consistent with a measured pull. We'd take the curve view off if SOFR-IORB inverts (currently 2 bp inside) or if Wednesday's core surprises soft on services pass-through.

Sources read

8 sources read

• Commentary items: 8

Citations

1. [1]2s10s closed at 38 bp on Friday's tape, down from 42 the prior session (0.38) — FRED T10Y2Y · Jun 5, 2026
2. [2]DGS2 at 4.05% (4.05) — FRED DGS2 · Jun 4, 2026
3. [3]DGS10 at 4.47% on Thursday's print (4.47) — FRED DGS10 · Jun 4, 2026
4. [4]pulled forward roughly 50bps of Fed tightening into year-end (50bps of Fed tightening priced in by year-end post-Friday NFP) — Commentary · zerohedge.com
5. [5]SOFR printed 3.63% on the latest publish (3.63) — NY Fed SOFR · Jun 5, 2026
6. [6]IORB at 3.65% (3.65) — FRED IORB · Jun 8, 2026
7. [7]DB at 4.3% headline, GS at 4.17%, with core firm (DB and GS both forecast headline above 4% YoY (4.3% and 4.17% respectively) on energy spikes, with core holding firm) — Commentary · zerohedge.com
8. [8]1Y inflation expectations down 18bp but driven entirely by gas, with rent and food repricing the wrong way (1Y inflation expectations dipped 18bp to 3.46% on gas deflation, but longer-end anchored and home/rent/food repricing up) — Commentary · zerohedge.com
9. [9]91282CQQ7) traded 23.8 bp special at today's SOMA op (23.8 bp special, $6.95B accepted) — Observation · observation:seclend_observations:91282CQQ7:2026-06-08
10. [10]after printing 61.9 bp on 6/3 (61.9 bp special, $6.24B accepted) — Observation · observation:seclend_observations:91282CQQ7:2026-06-03
11. [11]even as the headline 30Y hovers near 4.97% (4.97) — FRED DGS30 · Jun 4, 2026
12. [12]new bill (912797UX3, B 05/13/27) cleared 147.6 bp special (147.6 bp special, $1.45B accepted) — Observation · observation:seclend_observations:912797UX3:2026-06-08
13. [13]Brent +5% to $97.83 (Brent +5% to $97.83) — Commentary · zerohedge.com
14. [14]10Y settling near 4.53% intraday on de-escalation framing (10Y now settling near 4.53% after topping 4.58% as geopolitical tail risk deflates) — Commentary · zerohedge.com
15. [15]TGA sat at $844.5B on 6/4 ($844521M closing) — Treasury General Account · Jun 4, 2026
16. [16]well off the late-May $903.9B high ($903881M closing) — Treasury General Account · May 29, 2026

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