Notes for Tue, Jun 16, 2026

Crude collapse and the Iran MoU bid the front end, but we fade the 50-75bp dovish call into Warsh Wednesday.

The tape

We're fading aggressive front-end longs here. The Iran MoU and the crude collapse are a real inflation-premium unwind, not a shift in the Fed's reaction function, and the tape is pricing too much week-end dovishness off a framework nobody has signed.

Walk the evidence. WTI is sub-$81 and Brent around $83, 2yr yields are 5-7bp lower toward the 4.00 handle^[1], and year-end hike odds compressed to 60-65% from fully priced Friday^[2]. That is a clean energy-premium unwind. More telling is what sits underneath it: the strait stays shut until Friday's signing, mine clearing runs weeks^[3], and WoodMac sees only 70% of shut-in production back within three months^[4]. The supply relief is gradual; the rally is pricing it as a binary.

The load-bearing read is that this is a term-premium and energy move, not Fed repricing. A durable dovish shock at the front end needs the Fed to validate it, and Warsh on Wednesday leans the other way. So we reject the consensus call for 50-75bp of front-end dovishness by week-end^[5], we mark it closer to 15-25bp against an unsigned MoU with throughput still impaired. The view breaks if the MoU actually signs Friday and insurers reprice Hormuz transit, or if WTI breaks into the low-$60s and holds; then we add the longs rather than fade them. Assumes Treasury holds its bill-and-coupon pace into the meeting.

Warsh is the pin

Warsh is the pin. The first FOMC under Kevin Warsh holds the funds rate at 3.50-3.75% on every desk's read^[6], but the guidance language is where it gets live: drop the forward-guidance easing bias, and three participants dotting a 2026 hike turns the SEP hawkish at the tail^[7]. Warsh may not submit dots at all, consistent with his criticism of forward guidance^[8]. May retail sales prints +0.4-0.5% at 8:30^[9], before the 2:00 statement, and sets the tone.

The risk here is two-sided but asymmetric to us. A reframe toward data-dependence plus a hawkish dot tail reopens tightening optionality exactly as the energy tape pulls dovish. That collision is what caps the front-end rally, and it is why we'd rather own the cap than chase the move.

Plumbing holds into supply

Plumbing is calm into the supply wave. SOFR is 3.60% and EFFR 3.62%, both hugging IORB at 3.65% with the foreign-bank arb at 3bps^[10], no stress signal. TGA sits at $800bln, $100bln under target, ahead of a $79bln coupon settlement and $166bln of bill and coupon issuance Monday through Thursday^[11]. Reserves popped $66.8bln to $3.08trln since Wednesday^[12], which reads as cash positioned to take down supply rather than a balance-sheet problem; fails are steady at $23bln^[13].

One housekeeping note on the prints: Thursday June 11 is the last fixed reference-rate set in our inventory, so Friday's and Monday's SOFR and EFFR publish into this session at 8:00 rather than ahead of it. And the Jan-2027 bill (912797TM9) cleared the June 15 SOMA lending auction at 142.9bp over floor^[14], a single special, not a collateral story yet.

Long-end watch: AI credit

On the long end, we're watching AI credit as the term-premium tell. Nvidia is raising $20bln across seven tranches, its first bond sale since 2021, with the 10y tranche talked near 75bp over Treasuries^[15]. Year-to-date AI-linked issuance is $236bln, up 357% YoY^[16], and hyperscaler gross leverage doubled from 0.9x to 1.8x in two quarters^[17]. None of that moves the front end, but it keeps a bid under term premium and argues against chasing the long end richer even if the energy trade extends.

Sources read

8 sources read

• Commentary items: 8

Citations

1. [1]WTI is sub-$81 and Brent around $83, 2yr yields are 5-7bp lower toward the 4.00 handle (WTI sub-$81 and Brent $83 strip out ~$15/bbl war premium; 2yr yields 5-7bp lower toward 4.00 handle) — Commentary · zerohedge.com
2. [2]year-end hike odds compressed to 60-65% from fully priced Friday (Fed hike odds compressed to 60-65% by year-end vs. fully priced Friday) — Commentary · zerohedge.com
3. [3]the strait stays shut until Friday's signing, mine clearing runs weeks (the strait will actually remain closed until the official signing occurs on Friday - ostensibly to provide time for mine clearing operations) — Commentary · zerohedge.com
4. [4]WoodMac sees only 70% of shut-in production back within three months (could reach 70% of prior production within three months and 90% within six months under measured ramp-up) — Commentary · zerohedge.com
5. [5]consensus call for 50-75bp of front-end dovishness by week-end (If this holds, front end reprices 50-75 bps dovish by week-end) — Commentary · zerohedge.com
6. [6]holds the funds rate at 3.50-3.75% on every desk's read (the FOMC is likely to keep the funds rate unchanged at 3.50-3.75% and drop the previous forward guidance) — Commentary · zerohedge.com
7. [7]three participants dotting a 2026 hike turns the SEP hawkish at the tail (median dot to show no change to the funds rate in 2026, with three participants projecting a hike this year) — Commentary · zerohedge.com
8. [8]Warsh may not submit dots at all, consistent with his criticism of forward guidance (We assume that Chairman Warsh will not submit dots in light of his past criticism of forward guidance) — Commentary · zerohedge.com
9. [9]May retail sales prints +0.4-0.5% at 8:30 (Retail sales, May (GS +0.4%, consensus +0.5%, last +0.5%)) — Commentary · zerohedge.com
10. [10]SOFR is 3.60% and EFFR 3.62%, both hugging IORB at 3.65% with the foreign-bank arb at 3bps (SOFR 3.60%, EFFR 3.62%, both hovering near IORB (3.65%), with foreign-bank arb at 3bps) — Commentary · conks.plumbing
11. [11]TGA sits at $800bln, $100bln under target, ahead of a $79bln coupon settlement and $166bln of bill and coupon issuance Monday through Thursday (TGA sits $100bln below target at $800bln ahead of $79bln coupon settlement tomorrow and $166bln in bill/coupon issuance Mon-Thu) — Commentary · conks.plumbing
12. [12]Reserves popped $66.8bln to $3.08trln since Wednesday (reserve balances popped $66.8bln to $3.08trln since Wednesday, suggesting decent cash positioning into supply) — Commentary · conks.plumbing
13. [13]fails are steady at $23bln (Treasury fails holding steady at $23bln) — Commentary · conks.plumbing
14. [14]the Jan-2027 bill (912797TM9) cleared the June 15 SOMA lending auction at 142.9bp over floor (912797TM9 (B 01/21/27) at 142.9 bp, $1.53B accepted) — Observation · observation:seclend_observations:912797TM9:2026-06-15
15. [15]Nvidia is raising $20bln across seven tranches, its first bond sale since 2021, with the 10y tranche talked near 75bp over Treasuries (Nvidia is raising $20 billion in bonds across seven tranches... first bond sale since June 2021; 10-year tranche initially discussed at 0.75% above US Treasuries) — Commentary · zerohedge.com
16. [16]Year-to-date AI-linked issuance is $236bln, up 357% YoY (Year-to-date AI-linked debt issuance reached $236 billion, up 357% year-over-year) — Commentary · zerohedge.com
17. [17]hyperscaler gross leverage doubled from 0.9x to 1.8x in two quarters (Hyperscaler gross leverage surged from 0.9x in Q3 2025 to 1.8x currently) — Commentary · zerohedge.com

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