All eyes will be on labour market data due Thursday. NFP data have had a firm run, averaging 188k over the past three months. Note that the breakeven NFP that is required to keep the unemployment rate steady is probably between zero to 50k, given aging population dynamics and constrained immigration. Higher frequency data such as initial and continuous claims have also been broadly steady over the past few weeks, providing comfort for consensus to call for a 113k print for June. Against this backdrop, investors are betting that labour market resilience will mean that the Fed will keep a hawkish bias intact for the next several quarters. Notably, despite oil prices having given back all the conflict premium, US Treasury yields are still materially higher than where they were before the US-Iran war started. In the frontend of the curve, some 1.5 Fed hikes are priced over the coming year.
We are fairly neutral on USD rates in the immediate term. The retreat in energy prices have defused urgency for the Fed to tighten quickly. However, the passthrough from lower energy prices unto rates may have already run its course. It would probably require a material weakening in the US economy to drive 2y yields below 4% (removing the hawkish premium) We think 2Y yields would likely hover between 4-4.2% in the short term. 
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