July's FOMC meeting has turned live, providing a cyclical tailwind for US Treasuries. Overnight, Fed governor Bowman indicated support for a rate cut in July, adding to a similar view provided by governor Waller just two days ago. The market was probably fixated on September as the most reasonable point for the next cut given the median of two cuts seen in the dotplot this year. However, a consideration for July would indicate room for more than two cuts for this year, if needed, as the easing timeline gets brought forward. Developments in the Middle East also provided tailwinds to USTs. Brent crude prices plunged (dropping towards USD 70/bbl) as investors bet that the Middle East conflict would not have a lasting impact. This was validated this morning when Trump announced that a ceasefire has been brokered between Iran and Israel. Concerns about elevated high prices nudging up inflation and hence complicating central banks' policy decisions have largely dissipated.
The tactical UST rally is overdue. We thought that soft actual inflation over the past two months and signs of weakness across labour market indicators were more than sufficient to justify another round of calibrated easing, especially with the real FFR close to 2%. The Fed gets another set of NFP and CPI numbers before making the decision at the end of the month. Even if NFP stays firm, stable CPI might just be enough to tilt the Fed towards a cut. Currently, the market is pricing in a 20% chance of cut in July. Separately, the likely upcoming SLR tweak should also provide support for USTs at the margin. In this environment, we reckon that front to belly tenors are likely to benefit more, steepening the curve in the process. 
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