What now?
June 13, 2025
***************
–Israel attack on Iran’s nuclear facilities last night is the dominant factor. In my opinion, secondary effects and responses are likely to drain confidence from consumers. U of Michigan Sentiment comes out today (already old data at this point) and is expected 53.6 from last at 52.2, which was already near historic lows. When does it transfer over to ‘hard’ data? Now.
–I suspect that the US’ former open border policy allowed terrorist cells to infiltrate. The near-term risk of attacks on US soil have increased substantially.
–June options settle today in SOFR. SFRM5 only traded up to 9570, but in my opinion, given the increase in geopolitical uncertainty, there would still have been a chance for a Fed ‘insurance’ ease next week if Trump hadn’t called Powell a numbskull. Right back at ya, Don. No ease for you. ESM5 range 117.5 so far today. At the low of 5927.50 the contract was down 122 from Thursday’s settle.
–Exit seller yesterday of 50k SFRH6 9550/9500ps at 1.25. Last week there was a buyer of 12.5k SFRN5/Q5/U5 condor strip: 9575/9593.75/9600/9618.75 for 13.0 ref 9585. Yesterday he added 6k paying 19.0 for 6k ref 9591.0. Increase in value a function of both the rally and fall in vol.
–August Gold now 3444, up 42. High settles in this contract: 3454.60 on April 21 and 3452.1 on May 6.
–Jobless Claims yesterday 248k, high of this calendar year. Household Net Worth down to 169T from 171T in Q1 (function of equities).
Run for cover
June 12,, 2025
***************
–Early in session…post-CPI but pre-10y auction, over 13k TYZ5 108p sold 52 to 51 cov 110-16+ with 28 delta. (Settled 50 vs 110-20). Coming into the day there was only about 7k open across all TYZ puts. 2.5 points otm put is ~ 35 bps…so strike is right around the year’s high set in January of 4.80%. The low in the front TY contract at that time, on Jan 13, was 107-06.
–CPI was lower than expected 0.1 on the month, 2.4% yoy. Solid 10y auction: 4.43% near cut-off with actual at 4.421% and 3pm mark at 4.412% (once again gravitating towards current EFFR of 4.33%). On the day, 10y yield down 6 bps, and 30s down 3bps to 4.907% in front of today’s auction. Open interest across all treasury futures up, with significant rises in FV (+39k), TY (+32.6k) and UXY (+18k) suggesting a bid for safety. Gold is reflecting the same: GCQ5 is +41.7 this morning at 3385.40.
–Later in the day oil ran to over +$3 bbl as US evacuated personnel from US embassies in the Mideast over concerns of an Israeli attack on Iran. CLN5 +3.17 with 68.15s. Stocks slid lower, with ESM5 settling -16 at 6029.0, down over 45 from the day’s high.
–SFRM5 up 1 bps to settle right at strike going into tomorrow’s option expiration, 9568.75. The peak SFR contract is Z6 almost exactly 100 higher at 9668.5 (+7.5). On Wed I mentioned that 0QM 9650^ settled 10.25 ref 9646.5. Yesterday settled 7.5 vs 9654. This morning M6 prints 9656.5.
CPI and 10y auction
June 11, 2025
***************
–Relatively quiet session, marked by flatter curve. Two year rose 1 bp to 4.008 as the three-yr auction was slightly soft. Ten-yr was down 0.8 to 4.472 in front of today’s auciton and CPI. 30y auction is tomorrow, with 30y yield 4.938, down 1.5.
–CPI today expected +0.2 with Core +0.3. Risk is higher given tariffs. YOY 2.4 from 2.3 last with Core 2.9 from 2.8. June SOFR options expire Friday. 0QM5 9650^ settled 10.25 vs 9646.5. Market has been subdued, but if I had to make a choice I would buy rather than sell. Worth a mention is that ten-year tip/treasury breakeven eased to a new recent low of 231 bps. It’s been in a fairly tight range this year of 218 to 248, which I suppose could be interpreted as stable and low inflation expectations.
–Added to 0QV5 9637.5/9612.5/9587.5 p tree for 4.25. Settled 4.0 vs SFRZ6 at 9661.0, about 45-50k bought in last two days.
Notes. Gold/Silver
June 10, 2025
***************
–Yields down a bit on Monday, with 10s -2.8 bps to 4.48%. SFRZ6 is the peak SOFR contract, and it was also the strongest performer yesterday, +6 bps to 9662.5.
–3y auction today. NFIB Small Business Optimism as well, expected 96. CPI is Wednesday, expected 0.2 with Core 0.3 m/m, 2.5 and 2.9 y/y.
–One large trade 0QV5 9637.5/9612.5/9587.5 put tree about 25k bought from 3.5 to ~4.25. Settled 4.0. Underlying is peak contract mentioned above, SFRZ6 at 9662.5. A continuing theme is based on the Fed remaining stingy, and forward contracts rolling lower. (U5 is 9658 and M5 is 9648). Using a tree (selling an extra put) to express this view leaves open ended downside risk, but pricing and sentiment suggests little fear of an actual reversal by the Fed.
–Q1 Z.1 Fed Report is released Thursday for Q1. At the end of Q1 Total HH Assets were pegged at $190.2T, with Net Worth $169T. SPX fell by 4.6% in Q1. HH Real Estate will almost certainly be marked higher (~3%). Total Liabilities have remained fairly constant and are likely $21T now. My guess is that Net Worth will decline about 2% to $165.5T from $169 in Q4.
–Silver spiked to nearly $50/oz in 1980 (Hunt Bros silver corner) and in 2011. Last price 36.60 in a new breakout. Gold/silver ratio has abruptly reversed.
CPI Wednesday. Eases to be pushed further back?
June 9, 2025
*************
–Higher than expected NFP (+139k) sent yields soaring, with reds leading on SOFR strip, down 15 on the day. Peak SFRZ6 contract is now (Fri) at a price of 9656.5, down from a high print on Thursday of 9683.5, just over a quarter percent from Thusday’s high to Friday’s low. 9640-9650 should be solid support. In treasuries, 5s were up 13.8 bps to 4.126%, while tens rose 11.7 to 4.508%. Twos also up 11.7 bps, to 4.039%, but 5/30 spread declined 5.6 bps to 83.6, having been as high as 98 to end the month of May.
–One year calendars in SOFR had been as inverted as -100, but are now more like -75. At the start of May, SFRM5/M6 was -103, now -75.75 (9567.75/9643.5). FFN5/FFN6 is -78.5 (9567.5/9646). Obviously, easing estimates are being squeezed out. Citi apparently pushed back the timing for an ease from the July FOMC to Sept. There’s almost nothing priced in for a cut at next week’s FOMC: SFRM5 is 9567.5 or 4.325% as is FFN5, while Fed Effective is 4.33% and SOFRRATE has ranged from 4.26 to 4.35 in the past couple of weeks. FFN5/FFQ5 spread settled at a new high of -3.5 (9567.5/9571). The July FOMC is right at month’s end, on the 30th, so this spread is an easy proxy for expected ease at the meeting, 10-15% chance.
–SFRM5/U5 settled -23.5 (9567.75/9585.5) so right around one ease. SFRU5 9587.5^ settled 26.5, also around one-quarter percent.
–3, 10 and 30 year auctions start tomorrow. 30y currently seems comfortable hanging out around 5%. NFIB Small Business Optimism tomorrow, with CPI on Wednesday. China/US talks continue. LA/US talks seem to have broken down.
Breaking Points
June 8, 2025 – Weekly Comment
***********************************
Below is a chart of the copper/gold ratio compared to the 10y treasury yield. I had first heard it mentioned by Jeffrey Gundlach of DoubleLine. From 2019 (DoubleLine website)
Broadly speaking, the ratio of copper to gold can serve as an indicator of the market’s appetite for risk assets versus the perceived safety of Treasuries. More specifically, the ratio of copper to gold can serve as a leading indicator of the direction of the yield on the 10-year U.S. Treasury note.
Like a lot of things, that relationship broke in 2022. A rise in copper/gold once signified industrial demand, the backbone of the economy. It’s only about gold now and the cloud over fiat currencies.
In our new economy, the driver is not industrial copper, but rather information technology. So I created a chart with AAPL, AMZN, GOOGL, META, MSFT, NVDA (cap weighted) divided by gold. I excluded TSLA due to its specific political issues. The chart shows the surge from 2020, and the belated catch-up by the Fed and 10y yields. I don’t think there’s enough information to make this chart a useful indicator, but if it does have any predictive power, then this year’s decline in Mag6/gold might point to an economic slowdown and corresponding decline in yields.
In terms of the new economy and AI sweeping away jobs like a failed dam washing away a downstream town, friend TS sent me this link:
https://arstechnica.com/tech-policy/2025/06/openai-confronts-user-panic-over-court-ordered-retention-of-chatgpt-logs/
Late Thursday, OpenAI confronted user panic over a sweeping court order requiring widespread chat log retention—including users’ deleted chats—after moving to appeal the order that allegedly impacts the privacy of hundreds of millions of ChatGPT users globally.
In a statement, OpenAI Chief Operating Officer Brad Lightcap explained that the court order came in a lawsuit with The New York Times and other news organizations, which alleged that deleted chats may contain evidence of users prompting ChatGPT to generate copyrighted news articles.
Of course Large Language Models pirate copyrighted material, and obviously not just from NYT. In my opinion there’s no way around it. Yes, the legal profession is involved.
From an article on the Daily Mail which outlines job destruction wrought by AI (link at bottom):
From a distance, the job market looks relatively buoyant, with unemployment holding steady at 4.2 percent for the third consecutive month, the Labor Department reported on Friday.
But it’s unusually high — close to 6 percent — among recent graduates.
The Federal Reserve Bank of New York recently said job prospects for these workers had ‘deteriorated noticeably.’
Obviously, Friday’s US Employment report sparked a large jump in rates. On the week, the 5y surged 14.5 bps to 4.126% (up 13.8 Friday). Tens rose 9 bps on the week to 4.508% (up 11.7 Friday). SFRZ5 settled 9609 or 3.91%, only about 40 bps lower than the current Fed Effective rate. Previous Friday’s settle was 9619.5. Was the yield rise due to the realization of an economy that just won’t roll over, or is it partially due to other factors, like upcoming supply? I am keeping an open mind, but will highlight a couple of articles:
BBG (6/6/25): Muni Market Sees $20 Billion Supply Week, Biggest Since 2017
Municipalities have been selling debt at a rapid clip…with issuance running about 20% higher than the same period last year. The rush comes as pandemic-era stimulus aid dwindles and inflation drives up the cost of projects.
The market is gearing up for another heavy week of supply next week…$15.7 b calendar would be notched as the 10th largest tax-exempt weekly supply on record.
BBG (6/7/25): Corporate Cash Levels Are Starting to Fall
The biggest companies can distort averages, and by some measures many high-grade companies aren’t looking great. Leverage levels, for example, have been better about 80% of the time over the last two decades, a UBS analysis found.
“The large liquid megacaps have certainly outperformed,” [UBS] Mish said. “Under the hood, there certainly is a little bit more weakness.”
About $25b of US high-grade bond sales are expected in the coming week.
Finally,
June 5 – Financial Times (Ian Smith) For the first time in almost a generation, governments are starting to face resistance from the market when they try to sell long-term debt. ‘It’s a classic supply-and-demand mismatch problem, but on a global scale,’ says Amanda Stitt, a fixed-income specialist at… T Rowe Price. ‘The era of cheap, long-term funding is over, and now governments are jostling in a crowded room of sellers.’”
********************************************************
News this week:
Tuesday: NFIB Small Biz Optimism (last at 95.8, it has retraced the post-election surge).
3yr auction
Wed: CPI m/m 0.2 and Core 0.3. y/y 2.5 and 2.9 from 2.3 and 2.8
10yr auction
Thursday: Jobless Claims and PPI 0.2 and Core 0.3. Also FED Z.1 Household Net Worth Q1
30yr auction
Friday: UofMich. Joanne Hsu who heads the sentiment survey, was on Thoughtful Money last week:
“We’re seeing worries across multiple dimensions of the economy. Relative to six months ago we have consumers not only worried about business conditions, they’re also worried about their own personal finances…”
TRADE THOUGHTS
Once again huge buying in SFRZ5 9562.5/9537.5ps, now for 1.5 to 1.75, initially bought for 1.125 synthetically. About 50k added on Friday, settled 1.5 vs 9609.0. Needs a hike to play out. As of Friday, 9562.5p has 546k open (3.0s) and 9537.5 has 432k open (1.5s).
Another interesting trade which is more reasonable if one thinks the Fed doesn’t hike, but also doesn’t ease into the end of the year: Buyer of SFRZ5 9587.5/9568.75ps vs same in SFRH6, paying 2.0 (just 8k). These put spreads are 18.75 wide, and the lower strike is right where SFRM5 is trading now (M5 settled 9567.75). If there’s no ease this year, the trade should work nicely as the Dec put spread fills out to 18.75 and the March put spread, with three months of additional time value, would not be worth 18.75. Of course, it works best if the curve just rolls to the same relative positions as Friday: SFRM5 9587.5/9568.75ps settled Friday at 18.5 vs M5 9567.75 and SFRU5 same ps settled 11.75 vs U5 9585.5, so 6.75 spread to spread.
Also of note, some new buys in SFRH6 calls: +35k SFRH6.M6 9862.5c stupid for 6.0, settled 1.75/3.75 or 5.5. Buyer of 20k SFRH6 9800c vs -30k 9900c for 5.5, settled 4.25/1.0 or 5.5 for 2×3. New buyer (just 5k) SFRH6 9700c for 14.0 covered 9631.5 (settled 13.25 vs 9628.5). Disaster hedge.
One last trade: Buyer 12.5k SFRN5, Q5, U5 9575/9593.75/9600/9618.75 c condor strip for 13.0. All have SFRU5 as underlying, which settled 9585.5. Max profit is between middle strikes, so let’s say there’s one ease: Current EFFR is 4.33 and it would go to 4.08 or 9592.0. And then the world freezes at that price!? Instructive to look at the matrix:
SFRU5 9585.5s
JULY AUG SEPT
9575c 12.25 14.50 16.50
9593c 5.00 8.50 10.50
9600c 4.00 7.00 9.00
9618c 2.25 4.50 6.00
CNDR 5.50 3.50 3.00 (sum 12.0)
Above are all just examples of trades that went through expressing differing scenarios. The theme of trade this week in futures was: 1) easing prospects pushed further back on the curve 2) terminal rate pegged a bit higher 3) some bets for an actual hike.
| 5/30/2025 | 6/6/2025 | chg | ||
| UST 2Y | 391.5 | 403.9 | 12.4 | |
| UST 5Y | 398.1 | 412.6 | 14.5 | |
| UST 10Y | 441.8 | 450.8 | 9.0 | wi 451.0 |
| UST 30Y | 493.2 | 496.2 | 3.0 | wi 496.4 |
| GERM 2Y | 177.2 | 187.8 | 10.6 | |
| GERM 10Y | 249.9 | 257.3 | 7.4 | |
| JPN 20Y | 239.7 | 233.0 | -6.7 | |
| CHINA 10Y | 170.0 | 168.9 | -1.1 | |
| SOFR M5/M6 | -91.3 | -75.75 | 15.50 | |
| SOFR M6/M7 | -11.0 | -8.0 | 3.0 | |
| SOFR M7/M8 | 24.0 | 21.0 | -3.0 | |
| EUR | 113.49 | 113.96 | 0.47 | |
| CRUDE (CLQ5) | 59.79 | 63.63 | 3.84 | |
| SPX | 5911.69 | 6000.36 | 88.67 | 1.5% |
| VIX | 18.57 | 16.77 | -1.80 | |
| MOVE | 92.11 | 89.65 | -2.46 | |
Data spasms – NFP today
June 6, 2025
*************
–In my highschool biology class, we did that little experiment with a dissected frog leg, using a couple of wires off a C battery, touching the ends to the leg and getting a twitch. It’s ALIVE! That’s how the market is trading: a news flash comes out saying the Trump and Xi spoke and it’s like a wire prod into e-minis. Jerked straight up. But it’s still dead money. ES and NQ both with outside days and lower closes after making new highs early.
–So they took it out of CoreWeave (CRWV), last month’s IPO darling (-17% yesterday) and and put it into Circle’s IPO (Circle has to do with stablecoins and digital assets. For the purposes of this note, we’ll just call it a circle jerk).
–Bonds also ran up early as ADP lower than expected. Other data fed into the stagflation theme: Productivity -1.5%, so Unit Labor Costs +6.6% and Jobless Claims 247k, highest since last October. I had seen a news clip that BLS was having trouble with inflation data due to funding cuts, and that accuracy might suffer. Here’s a google AI summary:
Budget cuts and a hiring freeze at the Bureau of Labor Statistics (BLS) are impacting the collection of inflation data, potentially leading to less accurate and reliable Consumer Price Index (CPI) reports. This reduced data collection, particularly the price index, could affect the accuracy of inflation-adjusted Treasury bond interest rates, Social Security cost-of-living adjustments, and other economic indicators.
–Hmm. Ever hear of the Billion Price Project from MIT (2008). Or Truflation? How about scanning the internet for prices? In any case, BLS releases NFP today. which I am sure will be 100% accurate. Expected 125-130k. Unemployment rate expected 4.2%.
–Yields higher yesterday with 5y leading, +5.8 bps to 3.988%. Tens rose 2.8 to 4.391%. On the SOFR strip reds (2nd year) fell 5.625 to an avg 9667 or 3.33% and greens -6.375 to 9657.375 (3.43%). Seemed mostly like a position adjustment day in front of today’s data, which I think will be on the weak side. Failed breakout in copper yesterday (and lower this morning).
–From an MNI summary of market action: …Consumer Staples underperformed: Brown-Forman fell -16.2% after Canada & Europe cut back on Jack Daniels imports do (sic) to tariffs…”
Look, it’s time for Americans to band together:
Sluggish data
June 5, 2025
*************
Alex Manzara
Thu 6/5/2025 5:19 AM
–Fives, tens and bonds fell nearly 10 bps yesterday, to 3.93%, 4.363 and 4.886. The Fed Effective rate of 4.33% has been a magnet for the 10y yield, and once again the two are nearly equal. SOFR contracts up 8 to 9.5 from SFRH6 to SFRH9. Pretty much a parallel shift to lower rates across the curve. Peak contracts are Z6 and H7, both settling +9 at 9677.5. ADP lower than expected at 37k, ISM Service PMI fell below 50 to 49.9. USU5 settled 113-17 and now prints 113-25; should be strong resistance around 114-04 to 08. Last payroll report on 2-May USU settled 114-18. TYU was 111-08 on 2-May, now 111-04.
From the Beige Book:
Comments about uncertainty delaying hiring were widespread. All Districts described lower labor demand, citing declining hours worked and overtime, hiring pauses, and staff reduction plans. Some Districts reported layoffs in certain sectors, but these layoffs were not pervasive.
Prices have increased at a moderate pace since the previous report. There were widespread reports of contacts expecting costs and prices to rise at a faster rate going forward. A few Districts described these expected cost increases as strong, significant, or substantial. All District reports indicated that higher tariff rates were putting upward pressure on costs and prices.
In terms of the Fed’s mandates, labor is now likely more important, but the general picture is somewhat stagflationary.
–Today’s news includes Productivity and Jobless Claims, with the latter expected 240k. Payrolls tomorrow expected 130k.
Hedge against a Fed shift to HIKE?
June 4, 2025
*************
–Yields up slightly in the front end as JOLTS higher than expected at 7391k. Contributing to a risk-off environment, the asset cap on Wells Fargo was removed, allowing that bank to grow again (regulatory relief across the economy). Also ZH notes that yesterday’s treasury buyback at $10 billion was the largest on record, with $2b coming today in the 10-20 year sector.
–2y yields +1.6 at 3.955%, 10s unch’d at 4.458% and 30s down 1 bp to 4.983%
–SFRM6 and U6 were weakest on SOFR strip at -3.5 (9653 and 9663.5). Further out the strip, losses were smaller; golds were unch’d (5th year out). Option activity was concentrated in SFRZ5 (settled -1.5 at 9615.5). New buyer 60k SFRZ5 9562.5/9537.5ps for 1.125 to 1.375, settled 1.5. Previously, there had been heavy accumulation of Z5 9568.75p for 4 to 5, yesterday settled 3.75 with just over 340k open. Also yesterday, a seller of 24k SFRZ5 9650/9625/9600p tree down to 2 (settled 2.0). Net delta of -0.27 on the tree (equiv of about 6.5k futures sold). SFRM5 options expire a week from Friday and M5 settled 9568.75. Dec puts struck below that price require HIKES.
–News today includes ISM Services expected 52.0 from 51.6. The employment component was 49.0 last. The lowest was 46.2 since 2023. ADP expected 112k. Beige Book in the afternoon.
–Interesting X post:
https://x.com/rcwhalen/status/1929895359775449550
“Nearly a quarter of consumers using buy now, pay later loans finance groceries, up from 14 percent a year ago, according to a recent LendingTree survey. And it’s not just groceries; more Americans are using these loans to pay for recurring monthly bills, such as electricity, heat, internet and streaming services like Hulu.”
I would say the REAL growth will come when Klarna and Affirm allow BNPL for 0DTE options. Why not? At least there’s a CHANCE of upside, certainly relative to the spicy burrito that was delivered at midnight.
–Another news item: Meta inked a deal with Constellation for nuclear power to run Meta’s AI data center needs. At one end of the spectrum, the massive potential of AI requires nuclear power plants. At the other, Klarna and Affirm tout AI as an input to manage transactions. So, there are massive investments in nuclear technology which end up supporting something as inherently stupid as BNPL. Absurd.
Cover your ass
June 3, 2025
*************
–June SOFR options expire a week from Friday. SFRM5 has traded 9571 to 9567 since middle of May, settling Monday at 9568.75. Yesterday, otm calls were bought: 20k M5 9600c for 0.5, 30k 9631.25c for 0.25 and 35k 9662.5c for 0.25. Also a buyer of 30k SFRN5 9675c for 1.25 (SFRU5 settled 9590.5. It’s likely that Ukraine’s attacks on Russian airfields convinced some to cover tail risks. The base case is still articulated by Dallas Fed’s Logan: the Fed can afford to wait given the current data. But the base case doesn’t account for outliers.
–Eurozone inflation now below the 2% target at 1.9%. This morning June euribor is 9801 or 1.99%, essentially equal to inflation. ERU5 is 9816.5. By contrast Friday’s US PCE yoy Price Index was 2.1% and Core 2.5%, a midpoint of 2.3%. SFRM5 is 200 bps higher at 4.31%. SFRU5 is 4.10%.
–Of course, potential inflationary effects of tariffs still loom.
–5/30 treasury spread made a new high just under 98 bps. 5y yield +3.3 at 4.014% and 30y +6.1 at 4.993%. Long-end of US curve continues to trade under a haze of suspicion. 5/30 low this year is 34.5 bps in Feb. Low associated with Regional Bank problems in March 2023 is -46. High in early 2021 was 163 of course at that time 5’s were around 75 bps.
–Today’s news: Factory Orders, Durables, JOLTS. The latter expected 7100 vs 7192 last. Low of this cycle has been 7103 in Sept of last year.
