Higher Rates
May 13, 2026
**************
–I am away from the desk the rest of the week.
–CPI for April was unsurprisingly higher than expected yoy 3.8 vs 3.7 exp and Core 2.8 vs 2.7. A year ago in April WTI crude was around $65. Now 102.
–In part due to data, and in part due to negative bond conditions globally, yields made new highs. As mentioned previously the pressure on red SOFR contracts has been relentless, and SFRM7 made a new low 9610.5 (9611.5). EFFR has been setting 3.63 last couple of days or 9637, so SFRM7 is more than one-quarter pct higher, i.e one hike as Warsh was confirmed to take Miran’s spot as Fed Governor. All SOFR packs out 4 years are clustered tightly at yields just above current EFFR. Whites 9624.5, Reds 9619.125, Greens 9625.125, Blues 9617.625. Ten year rose 5 to 4.462%, 30s +4 to 5.026 with an auction today. Slight new low in 5/30 at 90.4 bps.
–Interesting (as usual) note from BBG Cameron Crise about big tech’s flip-flop from free cash flow positive to borrowing:
- This is the AI trade’s thirst for capital; Meta has issued a load of dollar debt this month, Amazon has announced a big Swiss-franc offering, and Alphabet has sold bonds in Canadian dollars and euros, with a further slate of yen-denominated bonds to be sold later this month.
- They are hardly alone. Total dollar-denominated corporate bond issuance has crossed the $1 trillion barrier for 2026 already; this is the earliest that that threshold has ever been breached.BBGs Cameron Crise
–Also from BBG– New York City Mayor Zohran Mamdani has ditched his plan to raise New Yorkers’ property taxes — an unpopular measure he threatened to use to help close a two-year deficit. [Already running out of other people’s money to spend] I mention it because data centers are also ‘unpopular’ and also requiring capital.
UNDERSTANDING HIGH FINANCE
May 12, 2026
***************
I was searching for this parable and finally found it…so now going out as additional missive (I thought it related well to Ares’ PIK ‘investment income’) I don’t know who to credit as original author, from 2015
‘Mary is the proprietor of a bar in Dublin. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar.
To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around about Mary’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Mary’s bar. Soon she has the largest sales volume for any bar in Dublin.
By providing her customers’ freedom from immediate payment demands, Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Mary’s gross sales volume increases massively.
A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Mary’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral
At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don’t really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses.
One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Mary’s bar. He so informs Mary.
Mary then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since, Mary cannot fulfil her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.
Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.
The suppliers of Mary’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.
Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.
Fortunately, though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion euro no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary’s bar.
Now, do you understand economics in 2015?’
On Life Support
May 12, 2026
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–There’s a lot of news this morning but I think this BBG article might be the most important: “A top South Korean policymaker said the nation should pay citizens a “dividend” using taxes on AI profits, underscoring growing pressure to redistribute gains from a boom that’s enriched chipmakers…” KOSPI index was 5000 at the end of March, made a new high of 8000 today but has made an outside day with a lower close. Classic reversal….but I know from personal experience the classics haven’t been working in my favor recently…
–The allure for gov’ts to charge taxes on ‘excess AI profits’ to mollify anti-AI populace could catch on globally, like wildfire.
–Yesterday I noted on X that SENSEX was selling off as Modi urged citizens to conserve fuel, avoid foreign travel, etc. In contrast, Trump is likely to suspend the federal gasoline tax. SENSEX is lower this morning, and feels like a near-term test of the April low is in the cards. Trump can’t bear the pain from weaker stocks, Modi can.
–UK rates are making new highs with Starmer floundering. BBG notes the UK 30y yield tops 1988 high. The UK ten year is also making a new high of 5.12 (last seen in 2008). Note that six years ago the yield was almost zero, at 7.5 bps. Japan’s 10y JGB is also at a new high this morning of 2.545% (low was negative 29 bps in 2016). German bund isn’t quite at a new high, but trying. US 10y is currently 4.43%, not a new high but certainly vulnerable as US treasury auctions 10s today and 30s tomorrow. Today’s CPI could have a large impact as well, expected +0.6 vs +0.9 last, with yoy expected 3.7 from 3.3 (Core 2.7 from 2.6). CLM6 higher this morning at 101 with the Hormuz ceasefire on “life support”.
–I noted this weekend that NDX (nasdaq 100) had added over $9 trillion of market cap since the end of March, nearly 1/3 of GDP, and concluded this wealth effect might add to inflationary pressures. Pullback in US stocks this morning…
–This X post is from @Fongern_FX
Oh, oops! Blackstone’s flagship private credit fund is under redemption pressure. Jon Gray (President & COO) responds by asking senior executives to put in their own money. When the largest manager in a $1.8tn market needs its own people to plug the gap, the model is breaking.
That’s Blackstone, below is Ares: PIK is analagous to “add it to my tab” at the tavern.
“In 2025, noncash PIK interest and dividends were nearly $490 million, or 34%, of Ares’ net investment income. A decade ago, PIK was 8% of its net investment income.”
“There won’t be any money, but when you die, on your deathbed, you will receive total consciousness.” -The Lama
[total ‘noncash’ consciousness does NOT equal “investment income”]
–Just as it feels like global markets are entering a maelstrom as Trump and Xi are set to meet, I’ll be out of office the rest of this week. Good luck.
Local real estate
May 11, 2026
**************’
–From the latest Doomberg, just prior to this week’s Trump/Xi meeting:
Ultimately, the sanctions weapon is an elaborate confidence game. Global players need to be held to account if they run afoul of sanctions, but if everybody runs afoul of it all at once, a run on the bank of US financial power could occur.
–The quote refers to sanctions Bessent placed on 5 Chinese energy companies.
On Saturday [May 2] the Chinese Ministry of Commerce issued a notice prohibiting the recognition, enforcement, or compliance of U.S. sanctions against five Chinese companies accused of participating in Iranian oil transactions. The ministry said the sanctions “constitute improper extraterritorial application.” (NBC news)
Not sure what the implications are, but this week’s meeting may be critical.
–Yields eased a bit Friday in a flattening curve. 2/10 edged to a new recent low 47.5 (2y 3.89, -2.5 and 10y 4.365. -2.6). SFRM7 was +4.5 to 9626. 3y auction today, followed by 10s and 30s Tues/Wed.
–Last week I mentioned a story about a data center builder paying 10x the farmland asking price for a 300+ parcel of farmland in Illinois. Since then I have heard several – related? – stories about real estate in the Chicago area. All anecdotal and likely specific, but surprising nonetheless. A couple of months ago I was talking to a neighbor about crazy prices for houses in my area (Wilmette, IL). My neighbor is a wealth mgr for lack of a better description, and he said it’s caused in part by boomer parents borrowing against their portfolios and paying cash for houses for their kids. Apparently the rate to borrow on a portfolio (according to YZ who researched it further) is something like 2.5%. But this weekend I heard three other stories, all in the context of new lows in consumer confidence: First, a guy said his daughter was trying to rent an apartment in Chicago near the viagra triangle (gold coast). He said they were being taken on first visit and some going above asking rents. Bidding wars for APARTMENTS! Another friend from the trading floor, now a realtor, Bob Royals, sent me this note: “Two very nice vintage condos around the corner from me just closed for $75K over list price- 15% higher.
I have heard that people are offering significantly higher rental prices than what the landlord lists.” This in Oak Park, first suburb west of Chicago.
–Finally, my brother is friends with a classic Irish real estate investor. Came here in his twenties with nothing and started buying apartment buildings with his brothers by scrimping and pooling whatever money they had. Now personally owns 300 plus units in Chicago in Wrigleyville, Logan Square etc. He just told my brother that even HE is amazed by soaring rent prices.
–Again, this is just the Chicago area, and in fairly popular locations. I guess the upper part of the K population. I have also seen airbnbs being sold with slashed prices in vacation spots, and large price declines in former boom towns like Austin. Real estate is local, just like the AI boom….
Near me…teardown house purchased for about $950k.
https://www.zillow.com/homedetails/526-Linden-Ave-Wilmette-IL-60091/3375433_zpid/
Hard for yields to ignore oil shortage + wealth effect
May 10, 2026 – weekly comment
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Jeff Currie of Carlyle: What happens when you run out of inventories?…Oil is the same thing. From a price perspective and a share of GDP it doesn’t matter, but you pull it out of the system, it matters. …I like to emphasize, that volumes matter. We in commodities, how do we quote things? We say millions of barrels per day or millions of metric tonnes or millions of bushels per day. We don’t quote in notional. Macro people quote in dollars. Financial people quote in dollars. And that is a very important distinction. I remember it was very similar during COVID. We were going, “you guys, you have a problem and it’s coming your direction.” Every commodity guy said “you’ve got a big problem”. Every macro guy, every finance guy, said no, no, no. Boom! inflation’s up over 10% year over year. It’s because they do not respect the idea of volume metric change.
From Doug Noland Credit Bubble Bulletin:
One of my favorite economic indicators, the ISM Services Index, slipped marginally in April to a still robust 53.6, with 14 industries reporting expansion versus only three in contraction. The ISM Services Prices Paid component was unchanged at 70.7, matching the high back to October 2022.
At 3.64%, New York Fed Inflation Expectations was reported at the highest level since September 2023. Surely boosted by high gas prices, Consumer Credit popped in April to $24.9 billion (est. $13.7bn), the strongest gain since November 2022. Also stronger-than-expected: March Factory Orders (up 1.5% vs. 0.6% forecast) and March New Home Sales (682k vs. 652k).
I would add that NFP was stronger than expected 115k with the unemp rate steady at 4.3%. Solid data, inflationary pressure.
CPI is released Tuesday, expected +0.6 m/m and 3.7% yoy (from 3.3 last). Core yoy expected 2.7 from 2.6. In mid-April 2025, front WTI (CL) contract was around $65. By mid-April of this year it was around 90, up about 38% (range in April 113 to 84). While many CEOs bemoan the lack of final consumer demand, the general price level is heavily influenced by energy.
The rates market has clearly focused more on the negative effects of inflation rather than a slow-down in growth. Not much change this week in rates: 10y -1.2 bps to 4.365%. 2y +0.4 to 3.89%. SFRM7 (one-year forward SOFR) settled 9626, down 0.5 on the week. However, since Feb 27, the start of the Iran attack, 2y yield + 51 bps, 10y + 42.5 bps and SFRM7 +80 bps (in yield).
With regards to employment, it seems that gov’t payrolls (includes state and local) have been declining. I created a chart (which I believe to be an accurate measurement) of govt payrolls / private payrolls as a ratio. Current level is 17.2%, near an all-time low. Looking at the long-term chart, it reminded me of long-term US yields, so I added the 10y yield. Quite similar, except the employment ratio is still moving lower while yields have obviously popped. My original view of Trump 2 was that government payrolls would decline, in a hopefully smooth transition to an increase in private payrolls. While that might have occurred to some extent, gov’t deficit spending is rampant, which is more of an explanation for the rate increase.
The obvious focus of markets has been chips. SOX index up 65% since the end of March! SMH up 55%. Sandisk is up from 237 at the end of the year to a new high 1562 on Friday!
Here are eight selected stocks (in SOX) with prices at end of March and current (JUST 1.5 months later) and current market caps:
SNDK 522 1562 $231B (up 3x)
INTC 41 124 $628B (up 3x)
WDC 251 480 $165B
MU 322 746 $842B
AMD 200 455 $742B
QCOM 129 219 $231B
AVGO 300 430 $2,0T
AMAT 323 435 $345B
Just these eight companies have added $2.33 trillion in market cap in a month and a half.
By way of comparison, in the dot com bubble, from Oct 1998 to late Jan 1999 (~4 months) Nasdaq 100 (NDX) nearly doubled from 1129 to 2127. Then, from October 1999 to March 2000 (the top) it doubled again, from 2362 to 4704. The current NDX move from late March 22953 to 29234 (27%) currently seems almost tame, although the change in market cap is a whopping > $9 trillion.
Given numbers of this magnitude, the gov’t auctions this week seem almost small: $58b 3y on Monday, $42b 10y on Tuesday, $25b 30y on Wednesday.
Worth noting is that in June 1999, CPI was 2%. It had been 1.5 to 1.7% in the last half of 1998. By March of 2000, the ‘wealth effect’ had kicked in and CPI was 3.8%. It stayed between 3.8 and 3.1 for a year. The US 10y yield was 4.4% in September 1998, about where it is now. By the end of 1999 it was 6.4%, up 200 bps. TY futures below par? Last time that happened was in 2000.
| 5/1/2026 | 5/8/2026 | chg | ||
| UST 2Y | 388.6 | 389.0 | 0.4 | |
| UST 5Y | 402.0 | 401.3 | -0.7 | |
| UST 10Y | 437.7 | 436.5 | -1.2 | wi 437.4 |
| UST 30Y | 496.5 | 494.7 | -1.8 | wi 494.5 |
| GERM 2Y | 264.0 | 259.4 | -4.6 | |
| GERM 10Y | 303.5 | 300.4 | -3.1 | |
| JPN 20Y | 337.4 | 335.1 | -2.3 | |
| CHINA 10Y | 174.8 | 175.9 | 1.1 | |
| SOFR M6/M7 | 8.0 | 10.0 | 2.0 | |
| SOFR M7/M8 | -16.0 | -12.5 | 3.5 | |
| SOFR M8/M9 | 9.5 | 7.0 | -2.5 | |
| EUR | 117.21 | 117.87 | 0.66 | |
| CRUDE (CLM6) | 101.94 | 95.42 | -6.52 | |
| SPX | 7230.12 | 7398.93 | 168.81 | 2.3% |
| VIX | 16.99 | 17.19 | 0.20 | |
| MOVE | 70.41 | 67.25 | -3.16 | |
She was SHAKin’
May 8, 2026
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–Seen on X: “Minnesota Democrats have voted UNANIMOUSLY to BLOCK a requirement to remove DEAD PEOPLE from the voter rolls, per @GrageDustin“
–Chicago politicians breathe a nervous sigh of relief. Speaking of counting and polling, the big event of the day is nonfarm Payrolls, expected 65k from 178k last, with an unchanged rate of 4.3%. In this particular case, we’ll de-emphasize the ‘death’ part of the birth/death plug factor. After all, Trump tweeted yesterday that jobs were booming, and as he said regarding the December 2025 jobs data: “They gave me some numbers. When people give me things, I post them.” : – /
Bloomberg headline: Consumers Are ‘Running Out of Money’ and Cutting Back, CEOs Warn
–So… you go to Planet Fitness for your monthly workout and, feeling exhilarated, go to Shake Shack to treat yourself:
Planet Fitness runs about $25 month, and a burger, fries and milkshake at Shake Shack is right around the same price.
Both stocks (PLNT -30% SHAK -28%) were crushed on earnings reports, which sort of fits with the CEO warning. Even McDonalds has been under heavy pressure (of course part of the reason for that is that CEO Kempczinski disdainfully took a bite of a McD burger and in a lukewarm assessment said it was good (March 6. Lower ever since). In any case, here’s his view of the economy: “He said higher-income consumers are spending normally, while lower-income shoppers are cutting back more.”
–Maybe consumers are running out of money, but not credit: March Consumer Credit up a whopping $24.8 billion vs expected $13.7b. Last time there were similar increases was in 2023. Not quite $500 million per month in interest given bank credit card rates of 21% (according to St Louis Fed). Um…what happened to the Bernie/Trump 10% cap?
–Rate futures gave away Wednesday’s rally. SFRM7 which was up 10 Wed to 9628.5 settled -7 at 9621.5. Ten year yield rose 3.8 bps to 4.39%. Slight new low in 2/10 at 47.6 bps. Another 70k 0QZ6 9750/9800cs spd sold on exit 2.5 and just under synthetically…140k in two days. TYM6 110p 9 paid 40k, settled 16 with open interest up 26k, There was also some profit taking sales in TYN 109.5p (peak open interest strike in July puts at 150k). In any case, TY futures open interest jumped 113k, which I would think are hedges/specs related to today’s data.
Consumer staples, healthcare, and utilities now reflect just ~15% of the S&P 500 market cap, the lowest on record, per Augur Infinity.
CONAGRA (CAG) [I own] has a mkt cap up just under $7 billion and a (current) dividend yield of 9.75%. $7 billion is just a wiggle in Alphabet’s stock price. Do yourself a favor, buy yourself some Slim Jim’s which will give you energy to protest the new data center near you.
They saw YOU coming…
May 7, 2006
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–This is an astonishing story a friend mentioned to me:
He has family with a farm near Morris, Illinois. The Dresden nuclear power plant is in this area, about 62 miles southwest of Chicago, near the DesPlaines river. Units 2 & 3 of the Dresden power plant are over 50 years old, and according to Google, generate 1800 MW powering approximately 2 million homes.
Farmland in the area goes for about $13000 per acre.
Here’s the amazing part (Google AI):
Based on January 2026 reports, Denver-based developer Tract acquired 343 acres of land near Morris, IL—located in Grundy County near the Dresden power plant—for approximately $51.5 million. [1]
- Price Per Acre: The transaction breaks down to roughly $150,000 per acre ($51.5M / 343 acres), which is higher than the $135,000 mentioned in your query but aligns with the surge in local prices for prime, high-power-access land.
So, this data center builder paid over 10 TIMES to get a contiguous parcel of land. Supposedly, the data center will require something like 75% of Dresden’s output (and they are planning other data centers in the same area!!). So, $50 million is a drop in the bucket compared to CAPEX spend plans, but still…
So, residents may be crowded out by high and reduced electricity availability, but of course additional power generation facilities will be forthcoming, right? Again, according to Google: The company [GE Vernova] has a $100 GW gas turbine backlog expected to sell out through 2028-2030, with over 55% of the total backlog in long-term services.
No turbines, no additional power….
From Robert Bryce:
Over the past seven months, it’s become apparent that people all across the US are pissed off. They don’t like the super-rich tech oligarchs, they don’t trust Big Tech, and they are ready and willing to fight to stop AI data centers from coming into their cities, towns, and rural areas.
Broad coalitions of people from Indianapolis to Independence, Missouri, have organized to stop data center projects, and, as I noted a few weeks ago in “AI Rejected: Tracing The Great Data Center Revolt,” there have already been more than 70 rejections or restrictions in the first four months of 2026. That’s more than occurred in all of 2025. And remember, the rejection numbers for 2026 don’t include projects canceled or withdrawn due to local opposition. For instance, last month, Compass Datacenters withdrew plans for an 800-acre project in Prince William County, Virginia, after facing “intense pushback from local residents.”
https://robertbryce.substack.com/p/rage-against-the-data-center
ANOTHER thing I don’t understand: “An actor out on loan” ??
May 7, 2026
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–Oil lower, stocks to new record highs. What more is there to say? Nice bounce in rate futures yesterday with SFRM7 leading, +10 on the day to 9628.5. approaching the current EFFR of 3.64 or 9636. Tens down 6 bps to 4.353. Worth a mention is that the S&P dividend yield is at a new historic low at 1.08%, last around this level in 2000. There’s an Annual Dividend Future listed on CME, settled yesterday at 82.70 for Dec’26. ESZ6 settled 7504.75 so that’s 0.7%. Of course, I am not trying to imply that dividends are actually IMPORTANT in the AI world. Just a sidebar where I would also note that Fed Funds went from 6.5% at the start of 2001 to 1.75 by end of year as dot.com imploded.
–Exit seller of 70k 0QZ6 9750/9800cs from 2.75 to 2.5. Buyer of front June SFRM6 9631.25/9625ps for 0.25 (SFRM6 settled 9636).
–Of course, earnings ARE growing, hard to argue with THAT:
With 63% of S&P 500 companies have reported so far, blended EPS growth is +27.1% year-over-year (up sharply from earlier estimates around 13–15%). This would mark the highest quarterly growth since Q4 2021 and the 6th consecutive quarter of double-digit growth.” (source Grok).
–From FT: SpaceX is planning to float an initial $75bn of stock against a $1.75tn valuation — a mere 4.3 per cent of the company. Under the old Nasdaq rules, such a tiny free float would rule out index inclusion. But the new rules eliminate minimum free float criterion for new listings. The new rules would also allow SpaceX to join the Nasdaq-100 index after only 15 days, requiring funds that seek to track the index to buy the stock at their next rebalancing regardless of price.
Let’s just loosen the rules and makes sure these tech stocks maintain altitude. Support from passive index funds…
–But, from Doomberg’s latest: “DeepSeek has slashed prices on its artificial intelligence models, including its latest V4 which now costs 97 per cent less than OpenAI products, potentially triggering a price war in the highly competitive AI market…
–Remember when DeepSeek actually jolted the market?
Into this house we’re born
Into this world we’re thrown
Like a dog without a bone
An actor out on loan [??]
Riding out the storm….
If Iran settles, then oil and inflation expectations wither
May 6, 2026
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–Yields edged a bit lower Tuesday as stock indexes continued to make new all time highs. 2y down 2.6 bps to 3.936%. Tens -2.8 bps to 4.414%. SOFR contracts +1 to +3.
–This theme has been covered on X, but in case you missed it: yesterday the SOX index closed 51% above the 200 day moving average. From its low on March 30 it’s up 53%. At the same time Home Depot (HD) is down 20% from the high in February. Berkshire is down 8.4% from the Feb high. MCD is down 17%. All notched new lows for the year yesterday. Since 3/31 DJIA is up 6% and SOX +45%.
–This morning CLM6 prints under 95/bbl, down over $7 and a clear rejection of last week’s surge to 110. DXY is testing last month’s low, currently prints 97.83 with $/yen 156 as fears of intervention remain. June Gold is +145 to 4715, right in the middle of April’s range. TYM is up half a point to 110-26, having printed a new recent low Monday of 110-005. I have been highlighting SFRM7 as it’s one year forward and close to the lowest SFR contract on the strip. Settled at a new low of 9615.5 Monday, almost ½ pct higher in yield than EFFR and SOFRRATE, but this morning it’s 9628.5.
–In short the market sees an end to Iran’s Hormuz closure, which should alleviate inflation pressure and therefore pressure on rates, weakening USD and allowing rate futures to bounce.
–ADP this morning expected 120k from 62k, while NFP tomorrow expected 65k from 178k. Quarterly Refunding Announcement.
Relentless pressure on SFRM7
May 5, 2026
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–One year forward SFRM7 made a new low Monday at 9611.5 and settled 9615.5 (-11 on the day). From the Feb 27 settle of 9706 this contract has now fallen 90.5 bps! And it is near the lowest contract on the strip, an honor now held by SFRH7 at 9613.0 or 3.87% vs EFFR 3.64%. Near SOFR calendars posted new recent highs, with M6/M7 now +19.0 (9634.5/9615.5) but M7/M8 actually made a new recent LOW of -19.5 (9614/9645) which shows that weakness is concentrated in near reds. Worth a mention is vol bid: on Friday SFRM6 9625^ settled 79.5 vs 9626.5. Yesterday the 9612.5^ settled 85.0 vs 9615.5.
–As a comparison, in early August 2022, the first red was also just above 9700. The tightening cycle of the time had taken FFs to 2.25-2.5%. By November the first red neared 9500 as the Fed continued hiking; 3.75-4.0 on Nov 2. FF now 3.5-3.75% with hiking odds growing.
–Treasury curve flattened slightly. 2y yield rose 7.6 bps to 3.962% with tens +6.5 bps to 4.442%. The thirty year bond is now above 5%, 5.01 this morning ref USM6 112-12. High yield was 5.11 in October 2023.
–Large trade SFRZ6 9637.5/612.5ps 11.75 for 25k, exit, settled 11 vs 9620.5.
–0QU /3QU 9612.5 call calendar 3.5 to 3.75 paid for 5k to buy 0QU. A bit more synthetic curve stuff going thru, mostly countertrend. This one is interesting as SFRU7/U9 settled -0.5 (9622.5/9623). Premium outlay as red midcurve straddles are nominally much better bid than deferred. 0QU6 9625^ 54.5s (9622.5), 2QU 9637.5^ 46.5 (9633.5), 3QU 9625^ 42.0 (9623).
–JOLTS Is ikely the most important data today. Expected 6850 from 6882. Would pretty much be the lowest since 2021.
–ISM Services expected 53.7 from 54.0 Trade Balance.
–New Home Sales peaked over 1 million in 2020. Since 2023 the level has been a little over 600k to around 750k. Today expected 660k.
–Quarterly refunding announcement tomorrow. Payrolls Friday expected 65k.
