Waller makes his case. Market ignores. Like talking to a wall
July 18, 2025
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-Waller specifically calls for a rate cut at the July meeting. The market is fine with pegging him as a dissenter where the majority, led by Powell, will vote for no change. FFQ5 prints unch’d at 9568 this morning; little odds for a cut. SFRU5 is 9582.5, up 1.5. That’s just 15.5 bps above the current EFFR of 4.33% or 9567.0. Next FOMC meetings July 30 and Sept 17.
From Waller’s speech:
So let me follow my own advice and state up front the reasons I believe we should cut the policy rate at our meeting in two weeks.
First, tariffs are one-off increases in the price level and do not cause inflation beyond a temporary surge. Standard central banking practice is to “look through” such price-level effects as long as inflation expectations are anchored, which they are.
Second, a host of data argues that monetary policy should be close to neutral, not restrictive. Real gross domestic product (GDP) growth was likely around 1 percent in the first half of this year and is expected to remain soft for the rest of 2025, much lower than the median of FOMC participants’ estimates of longer-run GDP growth. Meanwhile, the unemployment rate is 4.1 percent, near the Committee’s longer-run estimate, and headline inflation is close to our target at just slightly above 2 percent if we put aside tariff effects that I believe will be temporary. Taken together, the data imply the policy rate should be around neutral, which the median of FOMC participants estimates is 3 percent, and not where we are—1.25 to 1.50 percentage points above 3 percent.
My final reason to favor a cut now is that while the labor market looks fine on the surface, once we account for expected data revisions, private-sector payroll growth is near stall speed, and other data suggest that the downside risks to the labor market have increased.
–There are a lot of obvious signs that financial conditions are already easy. Stocks at new highs (and levitating upwards on little volume), USD is soft. Corporate spreads are tight. The only factor that could be spilling into the restrictive bucket is long rates, with the 30y hovering around 5%. In terms of labor, some would consider a rate at 4.1 to 4.2 as full employment.
–Yesterday’s session was quiet with a flatter bias. 2y yield up 3.4 bps to 3.915%. Tens up 1.4 to 4.465%. Once again, the ten-year breakeven (treasury – tip) edged to a new high 246.5. The high of this calendar year was in Q1 at 247.5. 2024 high was 243.0, 2023 high was 251.6. In 2022, the October high was 257.7, but in April it was 303.6. The Fed (& Waller) might correctly say from this data that inflation expectations are ‘anchored’ but not at 2%, rather at 2.5%. And if neutral is 1.25% that points to a funds rate of 3.75-4.00 vs today’s 4.25-4.5%. Forward SOFR contracts (reds) seem to be comfortable around 3.25%, testing 3% every now and then.
–Today’s news touches upon inflation expectations. U of Mich 1-yr expected 5.0% from 5.0% last month. 5-10 year expectations 3.9% from 4.0%. NOT anchored. Housing Starts as well this morning.
–When the Fed started to cut, it was in September, just after the yen-carry turmoil of early Aug when yen surged ($/yen collapsed from 154 to 142 in a few days). Low in $/yen just below 140 coincided with the Fed’s 50 bp ease. Japanese election on Sunday. Yen has been trending weaker this month, with $/yen up to 148.70.
Spreads suggest ‘inflate out of it’ policies
July 17. 2025
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–Initial turbulence in yesterday’s session revolved around headlines that Trump had asked Republican lawmakers if he should fire Powell, and that ‘Trump is likely to fire Powell’ (WH official). Stocks and bonds immediately tanked; front end rate futures jumped, along with implied vol. Shortly thereafter, the chicken-out pivot came, with ‘Trump not thinking of firing Powell’. Ultimately, the core theme the market is coming away with is that the admin is pursuing policies that may juice growth, but at a price of higher inflation. As an aside, PPI yesterday was 0.0, but previous readings revised slightly higher.
–Concerns about higher inflation are reflected in spreads: Ten yr breakeven (treasury – tip) edged to another modest new high at 245 bps. 2/10 treasury spread ended (at futures settlement) at a new high 57 (though the recent high was in April at 64.2). 5/30 is at its best level since 2021 at 103 bps. Attached is a chart of 2/30, at 113. The trend line target is 150. High post-covid has been 229. The 2y note yield was down 7.3 bps on the day to 3.88%, while the 30y was nearly unch’d, just over 5.01%.
–On the SOFR strip, several near calendars made new lows. As the attached article from 2019 indicates, if Powell were to be removed, Vice Chair Jefferson would take the slot and a new appointment by Trump would have to be confirmed by the Senate. Takes some time. New low in SFRH5/M5 3m spread at -23.5 (9638/9661.5). New low in SFRZ5/Z6 1-yr calendar at -69.0 with Z5 up only 4 bps to 9612, but Z6 up 10 to 9681.0. SFRZ6 is still the peak SOFR contract.
–Trade highlights: another 90k bought 2QH6 9800/9825cs for 0.875 synth. This week’s total 150k, settled 0.75 vs SFRH8 9656.5. TYV 108p/TYX 107.5p stupid, 51 paid for 7.5k (2 day total 20k), settled 23 and 26. New buyer of 100k TYQ 115.5c for cab-7. Aug options expire a week from tomorrow and these calls are 5 points otm, but a week can contain a lot of risk given our current cast of characters.
–Today includes Retail Sales, expected 0.1 from -0.9 last. Job Claims expected 235k. Philly Fed Mfg -1 from -4.
Long bond near 5%, trying to hold…
July 16, 2025
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–Long end continues to trade suspiciously weak, with 30s just above 5% at 5.017% (+4.3 bps). Tens rose 6 bps to 4.487%. CPI slightly better than feared, with yoy 2.7% and Core 2.9%. PPI today. Large buyer +41k USU5 108p on blocks. Early, +22.5k for 28.5 covered 112-09, 16d and then later +18.5k for 34.5 covered 112-02, 19d. Settled 36 vs USU5 111-31s. New position, OI +40k. Also new: Late block buyer of TY puts: +10k each TYV5 108.0p for 26 with +10k TYX5 107.5p for 28 covered TYU5 110-10. (Settled 26 and 29 vs TYU5 110-09s)
–Early in the session Bessent said he favors Powell serving out his term until it ends in May. Jamie Dimon warned it’s essential that the central bank remains independent (followed of course, by Trump again blasting out his call for an immediate cut of 300 bps). FFQ5 is back to 9567.5/68.0 (settled 9567.5) so the market sees almost NO chance of an ease at the July 30 FOMC. Beige Book released this afternoon.
–Just for reference, the high yield on the 30y was 5.095% on 21-May. Settles on front treasury futures at that time: USM5 110-25 (yesterday settle 111-31) and WNM5 113-14 (yesterday settle 114-24).
–Note that the ten-yr breakeven (treasury – tip yield) edged to another new recent high of 2.426%. An additional nudge in the direction of higher forward inflation worries. One other thing, probably not even worth a mention but I will do so anyway since I’m focused on this for myself, HYG made a slight new low for July (for now it looks like a minor setback after the fierce rally off the April low). I had read that HYG and JNK holdings actually increased in quality, because the really crappy stuff was going to private credit. NO CONFIRMATION of that, but I thought this comment on X was interesting given Trump’s plan to use executive order to help open 401Ks to private markets. From EndGameMacro:
This is about rerouting a tidal wave of captive capital, trillions locked in 401(k)s into private markets that are increasingly illiquid, overvalued, and in desperate need of fresh inflows. Behind the populist framing lies a deeper truth: public markets are saturated.
Who are you going to believe? Blackrock or EndGame Macro?
–One last mention is in SOFR. Every contract from SFRZ5 through golds was -6 to -7.5 on the day. There was a lot of trade in SFRU5 puts, contract settled 9582.0. But the trade I am mentioning was flagged by BBG’s Edward Bolingbroke: a sale of 25k SFRM7/U7/Z7 butterfly at -0.5. New position. Settles: M7 9667. U7 9661.5 and Z7 9655.5. So M7/U7 settled +5.5 and U7/Z7 +6.0, fly settled -0.5. Back spreads typically aren’t that volatile, but in general have firmed a bit. Interesting to compare this fly to a year forward: SFRM6/U6 settled 9652.5/9665.5 so -13.0 while U6/Z6 settled 9665.5/9671 or -5.5. -13 – (-5.5) is -7.5, but I doubt the curve will act in a well-behaved roll. My initial thought was, “OF COURSE they’re selling, because Dec 31 2027 is on a Friday, so the turn covers a long weekend.” In the old eurodollar contracts, December always traded at a slight yield premium due to end-of-year funding pressures. In any case, blue horseshoe says avoid being long SFRZ7.
CPI today. Tariff impact?
July 25, 2025
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–Quiet session Monday. Large trades: BUY 50k 2QH6 9800/9825c for 1.0 ref SFRH8 9656.0. Settled 2.25 and 1.50 or 0.75 vs 9655.5. Expires 13-March 2026
SFRU5 9593.75/9600cs 1.375 paid for >50k on the day, settled 1.25 vs 9585.0. (5.0/3.75). Expires 12-Sept, while the Sept FOMC is on the 17th. Call spread would likely fill on an ease at the July 30 FOMC (with more expected). Otherwise, it depends on very strong easing prospects for Sept and high odds for the Oct 29 meeting. Note that FFQ5 which had been heavily bought a couple of days ago at 9568.5 and traded 69, was 68/68.5 yesterday. This contract directly prices odds for a July 30 Fed cut, and those odds are small(er).
5k add, 2QU5 9700/9750 vs 3QU 9675/9725cs for 0.50. Buy green, traded flat last week. Synthetic steepener. All of these trades are dependent on the idea of aggressive near-term cuts. They don’t have to happen immediately, but will probably require a catalyst in the form of much weaker econ data or an unwelcome geopolitical event.
–CPI today expected 0.3 both headline and Core on month/month basis. CPI expected 2.6% yoy vs 2.4% last. A lot of headlines this morning about rising long-end yields in Japan; new highs. Yesterday the US 30y came awfully close to 5% (probably around 112-11 in USU5; the low was 112-15). Headline which caught my eye in the Chicago Tribune:
State Farm defends hefty 27.2% hike in Illinois homeowner insurance rates.
Note that 10-year breakeven (treasury – inflation indexed TIP) edged to a slight new recent high 241.7 bps. Not exactly worrisome, but I’m sure the Fed would be a lot more comfortable with the low end of the recent range which is closer to 2.25%.
–Bank earnings this morning JPM, C, WFC and BLK
Unstable coin
July 14, 2025
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–Bitcoin continuing to rip higher this morning, $122.5k as of this Monday morning note. As can be seen on the attached chart, SPX priced in bitcoin is unsurprisingly making a new low, in concert with our government institutions. In 2020 , SPX priced in bitcoin plummeted with Treasury doling out direct USD payments as a response to covid in the US. Today: new lows.
–This morning Japanese bonds are at or through new highs. 10y JGB is just under 1.58%; last time here was 2008. Longer maturities are at the highest yields of the 2000s, with 30y 3.16%.
–US yields rose on Friday with the curve steeper. 2y +4.8 bps to 3.912%, 10y +7.9 bps to 4.421%. High in 2/10 in April was 65 bps (my mark, BBG has 64.2). Current 52.8. CPI is released tomorrow with yoy CPI expected 2.6% from 2.4% last. Let’s plant another story that Powell is corrupt and thinking of resigning. SFRZ5/SFRZ6 one-yr calendar is printing -65, down 1.5 on the day (9615, +1.5 and 9680, +3.5). Lowest print has been -67.5 on the employment data.
–Tariffs continue to dominate the news, but Epstein’s running a hot second. Threat of 30% on the EU, with a soft corn tortilla deadline of August 1. Earnings season kicking off with big banks tomorrow, JPM, C, WFC, BLK.
Sell bonds, wear diamonds
July 13, 2025
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Sometimes, all you have to do is look at something simple. Economic data might be murky. But the chart below is clear.
Yogi Berra: “You can observe a lot just by watching.”
DUBLIN, July 10 (Reuters) – JPMorgan CEO Jamie Dimon said on Thursday he thought the financial market was underestimating the possibility of U.S. interest rates climbing higher, a prospect he described as a “cause for concern”.
I don’t even care for the conclusion I am drawing from this chart. I hope I’m wrong.
What stuck with me from a time long ago is something that Tom Baldwin said. Baldwin was then the biggest local in the bond pit, which was then the main futures contract in Chicago. As I recall it, he was being interviewed on some financial program, and he was sitting there, slouched back in a chair in his purple trading coat, ragged tie halfway down his shirt. That was at a time when financial types on TV wore suits. Baldwin was talking about the bear bond market which was then in traction.
I believe the year was 1987 (pre-crash). There were some monster bond moves in the 80s and early 90s. From mid-1986 to early 1987 Fed Funds were at the then-low rate of around 6%. From March 1987 to October, the bond yield surged from 7.5% to nearly 10.25%. Perhaps this interview was from June, Baldwin said when bonds started to sell off he initially fought it, buying the break. Then he said, “I could see the selling just kept pouring in, so I switched and just went with it.” That’s a hard thing to do. But the logic was starkly simple.
I’m not positive I have the timing of this story right, but I know I have the details of the interview correct. Baldwin was a huge trader; he bought the Rookery, an office building on Lasalle street for $28 million in 1989 and restored it. The Rookery might have the most beautiful lobby in Chicago.
https://www.amazon.com/Saving-Treasure-Chicagos-Beginnings-Restoration/dp/1646699157
The environment now simply looks like global bond yields want to go up.
The vertical green line starts from December 2, about one month after the US election. Since then, UK, US, German and Japanese 30-yr yields have trended higher. The 10-yr is generally used as a benchmark, why look at 30s? In my opinion, that’s where the ‘term premium’ or ‘lack of confidence in governments’ asserts itself. Blast-off in bitcoin tells a similar story: maybe the long-bond isn’t going to cushion anyone’s portfolio from anything. Maybe silver is saying the same thing. (Gold/silver ratio has plunged from a spike up to 104.7 post-Liberation Day to a new low for this calendar year of 87.18). Maybe it’s worth focusing on the fringy stuff.
Early in the administration when criticism of Powell was at a relative whisper compared to today, Bessent said he was more concerned with 10y rates than the Fed’s short-term rate target. Here’s a Feb 6 headline from CNBC:
Bessent says Trump is focused on the 10-year Treasury yield and won’t push the Fed to cut rates
Like a lot of things, that’s gone right out the window.
The treasury is likely to favor issuing t-bills rather than long bonds. The BBB has violently jerked US priorities from getting spending under control to juicing growth in an attempt to outpace inflation. Brilliant idea, but global long rates are saying, “I don’t quite like the smell of that.” And the administration is now hyper-focused on short rates because a cut in funds immediately transfers to short term bill rates and will save the gov’t some money. In the short term. Short. Sighted.
Markets have been slow, making it tempting to take a month off. Nothing happens in August, right? In August of 2015 China devalued. Looking back, it’s barely noticeable on the chart. What if Trump fires Powell and Xi is removed from power, all in August? That would be pretty fun. Usually in the US there’s a cabinet shake-up after a year of a new administration. This year it’s likely to come in August. Everything’s in hyper-drive.
OTHER THOUGHTS/ TRADES
Trade from last week:
SELL 3x FVU5 107p at 8.5 and BUY 1x USU5 110p 31
FVU5 107p settled 9 ref 108-03, so -0.5 on 3 = -1.5. USU5 110p settled 43 ref 112-29, +13.
Not likely to be over. Roll bond puts down and sit on your hands.
Below is original rationale for trade. At Friday’s settle CTD bond was 4.75% of 11/43, giving the USU contract DV01 of $136.90.
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The current Cheapest-to-deliver bond is 4.75% of 2/41. Using that bond makes the DV01 on USU5 $125.30 per $100k. However, as the yield moves higher, the CTD changes. Using Bloomberg’s CMS screen, if the yield on the contract goes up by 25 bps (to a price of 111-04) then the CTD becomes 4.75% of 2/43. The DV01 on USU5 increases from $125.30 to $138.70. That’s an increase of >10%. Which, in my mind, should mean an increase in vol of 10%. An increase of 50 bps makes the CTD 3% of 11/44, which has a current DV01 of $157.60. Of course, due to convexity these DV01s will get a bit smaller as yields go higher. But the implication is that otm bond puts should probably be more expensive. The CTD on the 5y note does NOT change with a move of 100 bps either way. My inclination is to SELL 3x FVU5 107p, 8.5/64 (settle ref 108-1125 with -0.17 delta), and BUY 1x USU5 110p, 31/64 settle ref 114-08 with -0.18 delta. Vega on the 110 put is approx. 7/64’s. I.e. if the vol goes from 11.7 to 12.7 then the premium on the put rises from 31 to 38.
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This week:
Tuesday: CPI expected +2.6% yoy vs +2.4% last.
Earnings: JPM, C, WFC
Wednesday: PPI, Beige Book
Thursday: Retail Sales, Jobless Claims
Friday: Housing Starts
| 7/3/2025 | 7/11/2025 | chg | ||
| UST 2Y | 388.0 | 391.2 | 3.2 | |
| UST 5Y | 393.1 | 399.0 | 5.9 | |
| UST 10Y | 433.4 | 442.1 | 8.7 | |
| UST 30Y | 485.1 | 495.6 | 10.5 | |
| GERM 2Y | 183.1 | 189.6 | 6.5 | |
| GERM 10Y | 261.3 | 272.3 | 11.0 | |
| JPN 20Y | 235.2 | 250.7 | 15.5 | |
| CHINA 10Y | 164.2 | 166.4 | 2.2 | |
| SOFR U5/U6 | -89.0 | -86.0 | 3.0 | |
| SOFR U6/U7 | 5.0 | 4.0 | -1.0 | |
| SOFR U7/U8 | 20.0 | 21.0 | 1.0 | |
| EUR | 117.86 | 116.90 | -0.96 | |
| CRUDE (CLQ5) | 67.00 | 68.45 | 1.45 | |
| SPX | 6279.35 | 6259.75 | -19.60 | -0.3% |
| VIX | 16.38 | 16.40 | 0.02 | |
| MOVE | 86.09 | 85.48 | -0.61 | |
Day Baseball
July 11, 2025
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–Bitcoin new high this morning, nearing 119k. Market cap is $2.63T. Top 5 cryptos according to coinmarketcap.com have combined market cap of around $3T (bitcoin, ethereum, tether, xrp, bnb). Look around at the world’s political leadership. Bitcoin up over 7x since late 2022. NVDA market cap $4T.
–Waller says the Fed is restrictive and has room to cut. August FF settled at 9569 (EFFR is 4.33% or 9567). FOMC in 2.5 weeks. Ten year yield unch’d at 4.342%. Slightly higher in front, while 30y yield was about 1 bp lower after a solid auction. I marked wi at 4.888% at futures settle.
–Couple of large SOFR steepeners thru call spreads. Not recommendations, just interesting plays.
+20k 0QU5 9700/9750cs vs
-20k 3QU5 9675/9725cs
(6.5s vs 9676.5 & 5.5s vs 9652.0)
Paid 1.5 for 0QU, settled 1.0
+10k 2QU5 9700/9750cs vs
-10k 3QU5 9675/9725cs
(5.25s vs 9671.5 & 5.5s vs 9652.0)
Paid flat for 2QU, settled -0.25
Just considering the current shape of the SOFR strip, I might prefer green to blue (+2QU and -3QU). SFRM6 is 9664 and U6 is 9676.5, so spread of -12.5 implies that there’s a significant headwind on the 0QU call spread. SFRM7 to SFRU7 rolls POSITIVE, spd is +5.5, 9677 to 9671.5, while SFRM8 to SFRU8 is +4.5 (9656.5/9652). Of course, if we’re just looking at the current curve, all call spreads expire worthless. These trades require a shift in sentiment encompassing near-term, untethered, outsized, irresponsible easing (think Sue Eleen Mischke walking down the street, flouting society’s conventions).
–Lee Elia passed. If nothing else today, it’s worth listening to his famous 1983 rant (use headphones, there’s a LOT of profanity). OnTapSportsNet puts it this way:
Before he was known for a tirade, Lee Elia was trying to lead the Cubs out of the dark. He didn’t win a title, but he left behind something just as lasting, the truth.
Drivel
July 10, 2025
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–Back in the day on the old CME floor when we traded eurodollars, I would meet a group for market discussions and general pontifications on Thursday post-close at the Venice Cafe, a lunch cafeteria across the street from Sears Tower and 2 blocks south of the Merc. A more succinct description is: we sat at a big round table and drank a lot of happy hour beer. Although these meetings could sometimes get boisterous, bordering as they were, on the edge of inebriation, the conversations were a hell of a lot more insightful then this little excerpt from the FOMC minutes: (I am adding a couple of editorialized comments which might have come from the round table).
A couple of participants noted that, if the data evolve in line with their expectations, they would be open to considering a reduction in the target range for the policy rate as soon as at the next meeting. [Think they can go in July? NO! …would make Powell look like he rolled over. Well I bot some Aug Funds at 68.5. Then you’re gonna lose at least 1 tick, Why not buy some extra time with some Sept SOFR call spreads? Of course, you’re WRONG, but you can lose your money more slowly] Some participants saw the most likely appropriate path of monetary policy as involving no reductions in the target range for the federal funds rate this year, noting that recent inflation readings had continued to exceed the Committee’s 2 percent goal, that upside risks to inflation remained meaningful in light of factors such as elevated short-term inflation expectations of businesses and households, or that they expected that the economy would remain resilient. [Did ya see copper? New all time hi. Watching antimony? It’s up 10x in the last few years! WTF is antimony? I think they use it to strengthen beer mugs you idiot. They’re not going at all. Guy bot Z5 9587.5/9568.75/9562.5p trees. Great trade for a hold.] Several participants commented that the current target range for the federal funds rate may not be far above its neutral level. [We’re neutral now!! No we’re NOT. Gonna ease 150 by this time next year]
Various participants discussed risks that, if realized, [yes, bring two more pitchers] would have the potential to affect the appropriate path of monetary policy. Regarding upside risks to inflation, participants noted that, if the imposition of tariffs were to generate a larger-than-expected increase in inflation, if such an increase in inflation were to be more persistent than anticipated, or if a notable increase in medium- or longer-term inflation expectations were to occur, then it would be appropriate to maintain a more restrictive stance of monetary policy than would otherwise be the case, especially if labor market conditions and economic activity remained solid. [Labor market’s going to hell because of the tariffs and threats. Doesn’t mean they need to ease]
–Anyway, there was a buyer of >100k FFQ5 yesterday at 68.5. Open interest up 66k. Either goes to 67 or 92. CME lists a product called FYT. 3*FVU vs 2*TYU. Traded 35k early and 45 k all day. So that’s 135k FV vs 90k. Traded early at +0.25, by end of day it was -1.75/-1.5. Open interest in FVU was +32k but TY was unch’d. Doesn’t make much sense…thought was a steepener.
–Jobless Claims expected 235k today.
Electric Shock Therapy for Dr Copper
July 9, 2025
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–Light volume day Tuesday. Yields were up 1.0 to 2.5 bps across the curve. Every SOFR contract from SFRH6 to SFRU8 settled -2.5. Copper was the big mover, up to a new all-time-high on the COMEX due to the latest tariff threats. HGU5 settled 5.6855, +0.6595 on the day. Still talking about Epstein? They use copper in Teslas right?
–FFQ5 settled 9568.5, just 1.5 bps away from the current EFFR of 4.33%. Little chance of an ease at the July FOMC. The next year out, FFQ6 settled 9668.0, 99.5 bps lower in yield. SFRU5/Z5 3m calendar is -28.0 (9585.5/9613.5). Powell’s term ends in May and there’s been some speculation that BIG CUTS would be the first order of business for a new Chair, but SFRH6/M6 is -22.0 (9638/9660).
–Ten year auction re-open and FOMC minutes today. Old data, but yesterday afternoon’s consumer credit report was weak. Revolving credit (credit cards) decreased at an annual rate of 3.2%. Non-revolving (cars, school loans) increased at annual rate of 2.8%. Probably some ‘beat-the-tariff’ buys for cars. Manheim released the Wholesale Used Car Price Index yesterday. On a seasonally adjusted basis, prices rose 6.3% yoy, a 1.6% rise above May levels. “The non-adjusted price in June decreased 1.1% compared to May, which now makes the unadjusted average price higher by 5.1% year over year.”
Long-end yields vulnerable
July 8, 2025
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–Main feature yesterday was curve steepening and a weaker long bond. Auctions this week, with 3s today, 10s tomorrow and 30s on Thursday. Yesterday tens rose by 5.9 bps from Thursday (at the early futures settle) to 4.393% and 30s jumped 7.8 bps to 4.929%. As mentioned over the weekend, as yields go higher the cheapest-to-deliver bond for USU5 moves to a longer duration issue. On Thursday the CTD was 4.75% of Feb 2041, giving USU5 a DV01 of $125.30, but at yesterday’s close it had switched to the 4.75 of Nov 2043 giving USU5 a DV01 of $137.60. This morning USU is down 10 at 112-29. On the contract, there’s an increased risk that selling begets selling. The tariff news likely doesn’t help as it might be perceived as inflationary, and certainly Japan (slapped with a 25% tariff yesterday) had been a buyer of US debt. Japan’s long rates are also moving toward new highs, perhaps siphoning off some demand from US.
–Former NY Fed President William Dudley had an opinion piece yesterday on BBG, saying the Trump administration is doing the wrong things in its goal to get borrowing costs lower. Rather than using strongarm tactics, the admin should concentrate on getting government finances in order (that was the deal made long ago between Clinton and Greenspan). Dudley notes that [constantly] threatening the Fed’s independence might make investors fear renewed inflationary pressures.
–The system depends on confidence, not on cons. Even something like the botched handling of the Epstein (non) files is a cautionary signal. This morning’s NFIB Small Business Optimism eased just slightly to 98.6 from 98.8. NFIB says the 51 year average is 98. From the site: A substantial increase in respondents reporting excess inventories contributed the most to the decline in the index. The Uncertainty Index decreased by five points from May to 89. Nineteen percent of small business owners reported taxes as their single most important problem, up one point from May and ranking as the top problem again.
