Trade Recommendation: Pay 2-10 US SOFR at current levels of 0.15-0.18. Stop Loss at 0.14 & Take Profit at 0.25 

This week we have a large set of US macro data especially related to employment. May NFP is the most critical data. We expect May NFP to come at 100k against current market consensus of 125k. We also expect the JOLTS for April to come at 7100 lower than the March nos. Even in ISM PMIs for both manufacturing & services, we expect the employment index to come weak. Hence, we expect the short end to remain supported due to weak or sub-par employment nos. But on the other hand, long end US yields might again push up due to fiscal worries, section 899 worries, inflation expectations being high as can be seen in the forthcoming ISM manufacturing & service PMIs. The last week fall in US long end yields was more of a function of month end re-balancing from equities to bonds & index extension. But long end yields might again test the 4.55-4.65 levels on 10yr UST as global investors are shunning US treasuries. Technically, 0.15 level is a significant support on 2-10 US SOFR. Hence we believe the underperformance of long end USTs is a recurrent theme. The month end flattening of the curve is an opportunity to enter into steepeners at the current attractive levels of 0.15-0.18.

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