Massive SOFR call buying
February 18, 2026
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–Massive buying of SOFR calls on Tuesday, primarily the 9800 strike. These are all new positions:
+45k SFRU6 9800c cov 9680.5, paid 4.5. Settled 4.5 vs 9679
+125k SFRZ6 9800c cov 9696 and then 91.5, paid 7 and 7.5. Settled 7.5 vs 9692
+40k 0QM6 9750/9800cs 4.0, settled 3.75 vs 9697
+50k 0QU6 9800c cov 93.5 to 96, paid 6 to 6.5. Settled 6.25 vs 9695
+50k 0QZ6 9800c 7.5 to 8.0. Settled 7.75 vs 9691
In treasuries there was a late roll -TYK6 114c vs +TYM6 115c, sold 50k May at 4 over covered TYH6 113-03. Settles 34 and 29. Since November this 50k clip buyer has targeted 113.5 and 114 calls, so the move to 115 strike is of some interest.
–Given the FOMC schedule and uncertainty regarding Warsh’s confirmation, it makes sense to go out past the July 29 FOMC. The 0QM 9750/9800cs is also reasonable if economic conditions deteriorate, though expiration is June 12 and the FOMC is 17-June.
–Curve flatter, with new recent low in 2/10 at 61.5. 2y +2.5 bps to 3.437 while 10y fell 0.6 bp to 4.052%.
–One other note worth mention in SOFR: Last Friday there was a seller of 50k SFRU6/Z6 at -11.5, which has caused that spread to edge lower, now -13.0. Yesterday SFRZ6/SFRZ7 one-yr calendar fell 3 bps to +1.0 (9692 -4 and 9691 -1). As recently as Feb 9 this spread was +12.5. Also, the peak SOFR contract has moved out one slot to SFRM7 at 9697. The market expects easing of course, but is pushing the timing out a little further.
–Housing Starts, 20y treasury auction and Fed minutes today.
Treasuries once again act as safe harbor
February 17, 2026
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–Treasury futures are currently at two month highs as stocks can’t seem to hold a bid. TYH6 is 113-11+, with 10y yield 4.027. FVH6 is 109-255 with 5y yield 3.581, There are three lows in 5y around 3.56… Sept 8, 3.562, Oct 16, 3.548 and Nov 25, 3.564. A breakdown through 3.55 should see follow-through. Treasuries are now trading inversely with stocks. As mentioned, late Friday there was a new buyer 40k TYJ 112/114 risk rev vs 112-315, pay 6 for call. This morning, I check TYJ6 112.5/113.5 rr vs 113-12 and get 2/3 for call.
–March treasury options expire Friday. Currently TYH6 113.5^ is 32/33 ref 113-12. Treasury rolls become more active now as March opts expire.
–Quiet action yesterday though the ten year roll, TYH6/M6 was sold at 2.5. Currently 2.25/2.5. TYM6 duration is about 3% more than TYH6, so a full point rally is worth about 1/32 to the calendar roll, or 0.25 for every quarter point. TYH6 DV01 $66.40 and TYM6 $68.35.
–News today includes ADP Weekly and Empire Mfg, expected 6.2 from 7.7. Just as a reminder, a lot of analysts are mentioning a large increase in US income tax refunds as possible temporary support for stocks. I’m not sure I buy into that thought process, but it is worth remembering there’s a shot of fiscal stimulus being administered. I believe I heard $60 billion more this year than last, in aggregate.
One last item is a nice summary of Chicago Commercial Property by Nightingale Associates:
Chicago Office Sales
250 S. Wacker Drive ↓74% $23.8M vs $90M in 2011
175 W. Jackson Blvd ↓87% $41M vs $306M in 2018
600 W. Chicago Ave ↓82.5% $89M vs $510M in 2018
311 S. Wacker Drive ↓85% $45M vs $302M in 2014
200 S. Wacker Drive ↓68% $68M vs $215M in 2013
401 S. State St. ↓94% $4.2M vs $68.1M in 2016
70 W. Madison St. ↓77.5% $85M vs $377M in 2014
300 W. Adams St ↓92% $4M vs $51M in 2012
100 N. Riverside Plaza ↓87% Boeing leasehold interest $22M vs $165M in 2005
And, I’ve got it on good authority….Bears moving to Indiana.
..
Lower yields with or without the Fed
February 16, 2026
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President’s Day Holiday. Banks and treasury market are closed.
–Slightly soft CPI (+0.2 m/m, +2.4 y/y) capped a week of falling yields. On the week 10s sank 15.8 bps to 4.058% and 30s fell 15.1 to 4.702%. 10y yield dropped 4.4 Friday. The ten-year inflation breakeven has ranged between 224 and 238 since October, and ended the week at 229.6, closer to the lower end of the range. By this measure, inflation expectations appear to be well anchored and edging down.
–Option plays Friday favored upside: Buyer of 30k SFRU6 9800c for 4 and then 40k more U6 9800/9900cs for 3.0. Late in the day featured a reach for treasury calls: +40k TYJ6 112/114 risk reversal covered 112-315, 56d, paid 6 for the call. Settles: TYM6 113-025, 114c 0’24s (open int +49k) and 112p 0’15s (OI +22k). So the rr settled 9 vs 113-025. April treasury options expire 27-March, with the FOMC a week and a half earlier on March 18.
–Huge seller Friday of 50k SFRU6/Z6 3m calendar at -11.5. Spread settled -12.5 (9683.5, +4.5/9696.0, +6.5). That’s a new low, and indeed many near SOFR calendars sank to recent lows. SFRH6/H7 plunged 7 bps to -62.5 (9637, +0.5/9699.5, +7.5). SFRH7 is the peak contract on the SOFR strip and is again flirting with a 97 handle. SFRM6/M7 fell 5.5 to -40 (9659, +3.5/9699, +8.0).
–I’ll be away from the desk at the end of this week, so Wednesday morning will be the last note.
New lows in yields coming?
February 15, 2026 – Weekly Comment
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Two-yr yield has been between 3.43 and 3.63 since October. On Friday it ended at 3.41, a clear breakout to a new low. The 5y had lows of 3.56 in Sept, 3.55 in October and 3.56 in November. 5y yield popped to a high of 3.86 in Jan, but ended Friday at 3.61, essentially equal to the midpoint of the current FF range and near the five month triple bottom. The ten-yr was as high as 4.28 at the start of this month, but ended at 4.05, a drop in yield nearly equal to a 25 bp cut. Same with the 30y, high of 4.92 on Feb 4, and now 4.70.
In looking back at previous large yield drops in the 30y yield, the beginning of September stands out. The market was looking for an ease in Sept, and the payroll data on 5-Sept provided the final excuse. NFP of +22k and rate of 4.3%. From Sept 2 to Sept 8, the 30y yield plunged 27 bps from 4.96 to 4.69. As mentioned above, from Feb 4 to Feb 13, the 30y yield has fallen from 4.92 to 4.70. The closing yield on Sept 8, the Monday after payrolls, and now is identical. The table on the next page shows Sept 5 closes to Friday’s (Feb 13)
The Fed eased Sept 17, 2025, just after the data. At the time, the Fed Effective rate was 4.33%. Rate cuts came in Sept, Oct and Dec bringing current EFFR to 3.64%. Yet many prices in the table are nearly the same! In September, the two-year was already telegraphing an ease, and even though there have been 75 bps of cuts since then, the yield is only down 10 bps. The 2/10 treasury spread and red/gold SOFR pack spread are both only steeper by 8 bps. What appears somewhat out of line, in my opinion, is the 5y yield, which is actually 3 bps higher now than in Sept, and also the peak SOFR contract, SFRH7. While the 2 yr is 10 lower in yield from Feb, the 5yr is 3 higher and SFRH7 is 13.5 higher (price difference used in table below).
Of course, in September, H7 was in the 7th quarterly slot and now it’s 5th slot. In early Sept, the spread between EFFR and SFRH7 was 146 bps, but it’s now only 63.5 bps. Currently, the 7th slot is SFRU7, at a priceof 9696.
| 9/5/2025 | 2/13/2026 | DIFF | |
| 2Y | 3.51 | 3.41 | -0.10 |
| 5Y | 3.58 | 3.61 | 0.03 |
| 10Y | 4.08 | 4.06 | -0.02 |
| 30Y | 4.77 | 4.70 | -0.07 |
| 10y B/E | 2.37 | 2.30 | -0.07 |
| 2/10 spd | 0.57 | 0.65 | 0.08 |
| red/gld sofr | 0.51 | 0.59 | 0.08 |
| Peak SFRH7 | 9713 | 9699.5 | -13.5 |
| SPX | 6481 | 6836 | 355 |
| NDX | 23652 | 24733 | 1081 |
What does this little exercise tell us? If history repeats, it’s that the 30y yield probably has more to fall. I would also say that if I were to buy any treasury, it would likely be the 5y at this point. My feeling is that red SOFR contracts, currently H7, M7. U7 and Z7 are lagging in terms of prices. That is to say, perhaps prices in reds should be closer to the old highs of 9715-20.
I am not suggesting in the above brief summary, that one should do something like buy 5/30 spread, though I do believe that’s a reasoable trade. My personal strategy would be to use options to play for a possible breakout in the five year (below 3.55 yield) and/or to do the same in red SOFR contracts, targeting 9725 to 9750. (Certainly, a lot of call structures have gone through SOFR contracts expressing the same idea).
There are a couple of other notes relating to the table: First, stocks have essentially gone sideways since the September ease cycle began, with a slight upside bias. I’m not including a chart, but it’s worth mention that NDX (Nasdaq 100) made its high on October 25, 2025, just before the Oct 29 Fed cut. Last week I had observed that SPX made its high in October 2007, after the initial 50 bp ease in Sept 2007. There appear to be similarities.
One other point: MOVE appears to have bottomed, closing at the high of this calendar year at 70.10. Low in late January was 55.77. It’s too early to call this move a breakout, but it does lend support to a view that yields are moving lower.
Below is a chart of the rolling red pack spread. I’ve thought repeatedly (mostly incorrectly) that the upper limit of 9715 to 9720 associated with past market blow-ups would give way, and that reds might set up in a range of something like 9710 to 9760, which would be consistent with a terminal funds rate of 2.25 to 2.5%. Growth data remain fairly solid and inflation is sticky, so the implication is a real rate near zero. If the AI bust develops, it’s not an outlandish scenario.
This week’s major release is Friday’s PCE Prices, expected 0.3 both headline and Core, up from +0.2. YOY expected 2.8 from 2.8 with Core 2.9 from 2.8. Twenty-year auction. $16B, on Wednesday.
OTHER THOUGHTS
I’m just going to cite a few trades from Friday here. First, s seller of over 50k SFRU6/Z6 3-month calendar spread, mostly at -11.5. One week ago on Feb 6 the spread was -7.5 and on Friday it settled -12.5…big move for a 3-m spread. The three-month calendars in front are March/June at -22 and June/Sept at -24.5, so natural roll is a tailwind to the Sept/Dec sale, as is the thought that actual Fed cuts could be delayed due to Warsh’s confirmation schedule. Surprisingly, prelim open interest shows U6 -8.9k and Z6 +14.3k. I would have expected large increases in both.
SFRZ6 settled 9696 or 3.04%. The last FOMC SEP pegged end-of-2026 FF at 3.4% and 2027 at 3.1%. The market has moved that timetable up. SFRZ6 now has the most Open Int of any SOFR contract at 1.44m, next closest is SFRU6 at 1.39m. In SOFR call options, the largest open interest of any strike is SFRU6 9700c with 528k open, settled 13.5, 0.37d vs 9683.5. On Friday, there was a new buyer of SFRU6 9800c, paying 4 for 30k (4.5s) and then 3 for 40k 9800/9900cs. The first FOMC with Warsh at the head may be in June, but centering positions in September buys a little more time, which makes sense.
One skew trade of note late Friday: TYJ6 112/114 risk reversal covered 112-315, buyer of 40k paying 6 for the call. Settles: TYM6 113-025, 114c 0’24s (open int +49k) and 112p 0’15s (OI +22k). So the rr settled 9 vs 113-025, a clear indication that fear is to the upside.
| 2/6/2026 | 2/13/2026 | chg | ||
| UST 2Y | 349.3 | 341.2 | -8.1 | |
| UST 5Y | 375.5 | 361.2 | -14.3 | |
| UST 10Y | 421.6 | 405.8 | -15.8 | |
| UST 30Y | 485.3 | 470.2 | -15.1 | |
| GERM 2Y | 208.2 | 203.4 | -4.8 | |
| GERM 10Y | 284.1 | 275.4 | -8.7 | |
| JPN 20Y | 312.3 | 304.8 | -7.5 | |
| CHINA 10Y | 180.6 | 178.3 | -2.3 | |
| SOFR H6/H7 | -47.0 | -62.5 | -15.5 | |
| SOFR H7/H8 | 18.5 | 13.0 | -5.5 | |
| SOFR H8/H9 | 22.5 | 22.0 | -0.5 | |
| EUR | 118.15 | 118.69 | 0.54 | |
| CRUDE (CLJ6) | 63.36 | 62.75 | -0.61 | |
| SPX | 6932.30 | 6836.17 | -96.13 | -1.4% |
| VIX | 17.76 | 20.60 | 2.84 | |
| MOVE | 63.62 | 70.10 | 6.48 | |
Dispersion
February 13, 2026
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–Rate futures surged, led by longer maturities, as Existing Home Sales came in at just 3.91m vs 4.15m expected, and the tech (& bitcoin) sell off resumed. SPX -1.6% on the day, Nasdaq -2.0%. The 2y yield fell 4.6 bps to 3.464%, but tens fell 6.8 bps to 4.102% and thirties fell 8.2 to 4.73%. On the SOFR strip, the peak contract is still SFRH7, +6.5 to 9692. However, front March barely moved, up only 0.5 to 9636.5. H8 rose 9 to 9679.5 and H9 +9.5 to 9658.5. Obviously the long end is unconcerned about today’s CPI, expected 0.3 both headline and Core, with yoy expected 2.5% vs 2.7% last and Core 2.5% vs 2.6% last.
–New lows in many of the near SOFR calendar spreads. The front end is hesitant to price easing, while more deferred contracts are blithely unburdened but what has been. SFRH6/H7 made a new low of -55.5. SFRM6/M7 new low -34.5 (9656.5, +1.5/ 9691.0, +7.0). Volume was solid. By the end of the day, there was a bit of a protective reach in tens, with a buy of 27k TYH6 113.5c for 6 to 7. (Settled 6 vs 112-255) March treasury options expire on Friday.
–Cherry picking here, but this example sort of gives a flavor of the equity market: On Oct 31, WMT was 101.18. Yesterday closed at a new high 133.64, up 32% in 3.5 months. On Oct 31, Coinbase was 343.78. Yesterday, 141.09, a decline of 59%. Bro.
Rate cut odds fizzle after jobs report
February 12, 2026
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–There are a couple of articles this morning analyzing tomorrow’s CPI release. As if it matters.
–After being led to believe payrolls would be weak, actual data showed NFP rose at a solid 130k, nearly double the expected number, with the unemployment rate falling to 4.3%. Annual benchmark revision showed a loss of 862k jobs, better than feared. Yields jumped on the release, but came back to finish only modestly higher. Ten yr ended at at 4.17, near the yield at the auction, up 2.9 bps from Tuesday. 30y auction today. Curve flattened with the 2y up 5.6 bps to 3.51%.
–On the SOFR strip, SFRM6 was weakest at -8 on the day, price of 9655 or 3.45%, compared to EFFR of 3.64%. SFRM7 was -4.5 at 9684, M8 -4.5 at 9664.5 and M9 -3.5 at 9644.0. SFRM6/M7 calendar made a new recent low at -29. Deferred one-year calendars are hovering around +20.
–Some decent size buying of TYJ options. TYJ6 111.5/112.5 strangle 53 paid for 25k and then 52 for 10k. Settled 54 ref TYM6 112-045 (had settled 58 on Tuesday). Also a buyer of 20k TYJ6 111.5p covered in size of 20k. All new positioning. Open interest rose 30k in calls and 43k in puts.
–Exit seller 75k SFRJ6 9675/9687.5cs 0.75 as easing odds evaporate. FFQ6 settled 9662.5 down 9.5 on the day. So that’s 3.375 vs EFFR of 3.64, just more than one 25 bp cut. The August contract covers FOMCs in March, April, June and July.
Payrolls guided lower
February 11, 2026
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–Yields sank to recent lows Tuesday, in front of today’s delayed Payroll report. Soft data reports yesterday, with Retail Sales 0 vs 0.4 expected, and ECI +0.7 vs 0.8 expected. Peter Navarro warned of lower employment data on the heels of Hassett’s alert the day before. The company line is that job growth is slowing due to productivity gains, but that dynamic suggests more of the pie is accruing to capital rather than labor. In any case, NFP expected 70k, rate 4.4%, with annual revisions from -850k to -1 million jobs.
–Ten year yield fell 5.5 bps to 4.141%. The peak SOFR contract shifted back one slot to SFRH7, which settled +3.5 at 9691. Near one-yr SOFR calendars all made new lows. SFRH6/H7 settled negative 50 (9641, +1.5/9691, +3.5). SFRM6/M7 settled -25.5 (9663/9688.5). While the spreads indicate that modest easing is expected later in the year, there was a buyer of about 20k SFRH6 9650/9675cs for 1.75 to 2.0. March SOFR options expire 13-march and the FOMC is on the 18th; getting above the 9650 strike would mean a shift in market perception to a STRONG expectation of ease at the March 18 FOMC. Current odds expressed by FFJ6 (9641.5 vs EFFR 3.64 or 9636) are around 20%.
–Red SOFR contracts have been capped for several years now around 9710 to 9720. I had previously thought the latest round of easing would shift that soft cap up to 9730-40, but instead, inflation concerns moved reds into a lower comfort zone of 9675/9690. A bad labor report could easily see a pop above 9700, the question is whether it holds. I think reds could hold above 9700, but I think it would come in the context of a steeper curve, i.e. blues and golds lag significantly.
–Monster liquidation sales in FVH and TYH done through blocks yesterday (taking advantage of Hassett, Navarro signals?). List is below. Open interest fell 48k in both FVH6 and TYH6 contracts. Worth noting that TUH6 was also -44k.
–Just as an aside, a couple of interesting snippets regarding gov’t policy and market pricing: First, from ZeroHedge:
But last week – after Health and Human Services Secretary Robert F. Kennedy Jr. got 18 states to ban SNAP purchases of products like soda, candy, and processed snacks – PepsiCo announced price cuts of up to 15% on Doritos, Lay’s, Tostitos, and other Frito-Lay products.
Second, from Craig Fuller at FreightWaves: Compliance [both immigration crackdown and other] is sparking tightness and pay increases for truckers, trucking firms. And “…truckload volumes on a yoy basis are UP 8%.” “…not due to importers, but rather occurring in the rust belt.”
https://twitter.com/search?q=freight%20waves&src=typed_query
BLOCKS starting at 10:44 Chicago time (11:44 EST)
ALL SALES:
25k TYH6 112-175
25k FVH6 109-112
25k TYH6 112-165
25k FVH6 109-102
10k FVH6 109-107
A little less than an hour later
20k TYH6 112-155
20k FVH6 109-100
15k TYH6 112-150
15k TYH6 112-150 (two clips at same price)
Sums to 100k TYH and 80k FVH
Downplaying payrolls
February 10, 2026
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–Light volume Monday. Yields eased 1 to 2 bps, with tens -1 at 4.196%. Early bid attributed to Hassett: “I think that you should expect slightly smaller job numbers that are consistent with high GDP growth right now,” Hassett said Monday on CNBC. “One shouldn’t panic if you see a sequence of numbers that are lower than you’re used to, because, again, population growth is going down and productivity growth is skyrocketing.” Payrolls expected around 70k tomorrow (Wednesday).
–Today’s news includes ECI expected +0.8% and Retail Sales expected +0.4%. Three year auction, with tens after employment data tomorrow.
–One trade from yesterday (adding) was a 20k risk reversal, buying SFRU6 9725c covered, vs selling 0QZ6 9600p covered. The call settled 7.75 and the put 5.75. Mismatch on both time and underlying contracts. I only mention this trade because it caused me to check open interest (up in both), but I noticed that across ALL SOFR calls, SFRU6 9700c has the most open interest at 406.5k (settled 12.0, 35d). So, the overall appetite for long SOFR calls has moderated significantly, despite all the noise associated with 1/16% wide call condors.
–As mentioned yesterday, Feb SOFR midcurves expire Friday. 0QG6 9687.5 straddle settled 10 ref SFRH7 9687.5. 3QG6 9650 straddle settled 9 ref SFRH9 9647. Consider these levels vs TYH6 112.25^ which settled 40 and has one more week of time value (20-Feb expiry). Napkin calculation, 40/64’s is $625, and DV01 on the contract is around $65.5. According to these calculations the TY straddle is a bit less than 10 bps. (FV is slightly over 10). Obviously not apples to apples, but it seems to me the market is pricing whatever expectation of action there might be in the current week, with almost nothing left for next week. (TY wk2 112.25^ settled 32, so the spread to TYH is 8/64’s)
brief notes
February 9, 2026
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–Takaichi win in Japan sends stocks there to record. $/yen slightly weaker at 156.63.
–Little change (once again) in US rate futures Friday. 2y up 1.2 bps to 3.493%. 10y nearly unch’d at 4.206%. 3, 10 and 30 year auctions this week, with the 10yr on Wednesday following NFP and annual benchmark revisions. BBG reports ‘China urges banks to curb US Treasury exposure’. TYH6 is 111-30+ this morning, down 5.
–On Friday, SFRH6/H7 one-year calendar made a new low at -47 (9639, -2.0/9686, -1.0). FFJ6/FFJ7 settled -50.5 (9641/9691.5). Next FOMC is March 18; April FF are currently assigning 10% odds of an ease at that meeting. Around 2 cuts being priced over the next year.
–No news today, tomorrow includes Retail Sales, Employment Cost Index and 3y auction. Wednesday payrolls expected 69k from 50k last.
Have you ever seen the rain
February 8, 2026 – Weekly Comment
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Someone told me long ago, There’s a calm before the storm.
–CCR, John Fogarty
On a societal level, it’s storming. In interest rate markets, it’s relatively calm.
On the week, SOFR contracts from Dec’26 (peak contract, at 9686.5) to Dec’28 ended +4. The next four countracts were +4.5. SFRZ6 is 3.135% (expecting modest ease) and SFRZ8 is 9650 or 3.5%. The five-yr fell 4.2 bps on the week to 3.755% (top end of FF band) and 10’s fell 3.5 to 4.206%. The two-yr, at 3.493% is at the lower band of the FF target, 3.50 to 3.75%. SFRZ6 range has been 9670 to 9717 since July. Benign rate environment.
SPX has been sideways with a slight bias higher since September, 6500 to 7000. However, there’s been tremendous rotation under the surface.
It was a much different time when stocks put in their high in October 2007. Warning signs were piling up. (I would argue there are similarities now). Fed eased 50 bps on September 18, 2007. Unemp 4.7, CPI 2.8. The link below captures commentary from that day. Mostly cheerleaders, except Metz
https://www.latimes.com/archives/la-xpm-2007-sep-19-fi-markets19-story.html
Also rallying sharply: shares of commodity producers, apparently on hopes that the global economic expansion will roll on, supporting a continuing bull market in oil, gold and other commodities.
“This was clearly a big day for the stock market,” said Hugh Johnson, chief investment officer at Johnson Illington Advisors in Albany, N.Y. “This signals preliminarily that there will be no recession and that the bull market will resume.”
Gold, historically a refuge in times of rising inflation, reached a 27-year high. Gold futures for December delivery jumped in after-hours trading as high as $735.50 an ounce — the highest price for the metal’s most-active contract since February 1980.
“I have a feeling the rally’s over,” said Michael Metz, chief investment strategist at Oppenheimer in New York. The rate cut is “a short-term Band-Aid but doesn’t solve the problem.”
Stocks rose in the morning in part because brokerage Lehman Bros. reported better-than-expected third-quarter earnings. That allayed some fears about the effect that the financial-market turmoil is wreaking on the premier investment banks.
Looking back at the GFC period and the initial Sept 2007 rate cut, I decided to extend the timeline of the above chart to include gold’s run into late 2011, and the lockstep movement of stocks with the Fed’s balance sheet (QE) from 2009 to 2014. (Warsh resigned in Feb 2011).
I would note that in September 2007, the 2/10 spread was around 60 bps, a little lower than it is now (71). By March 2008 it was over 200 as the Fed slashed rates. Of course, that was from a much higher start: in Sept 2007 the Fed cut from 5.25 to 4.75. 10y yield was just under 4.5% pre-cut. By March’08 FF were 2.25%, while the 2y at 1.5% was forecasting further cuts. Tens were 3.5%.
While SPX currently appears calm, there are storms under the surface. As an example, here’s a chart of IGV an etf with top holdings: MSFT, PLTR, CRM, ORCL, INTU, ADBE, PANW, APP, CRWD. Security description: Expanded Tech-Software Sector. Well it’s not expanding any more, (but likely due for a bounce). Essentially a complete roundtrip from the Liberation lows in April. It’s a bit hard to see on the chart but from April to Sept, +53% and from October to now-33%. I would note that even now, MAG7 market cap is just shy of $21 trillion, compared to, for example, total mkt cap of Japan (in USD) of just over $8 trillion (approximately equal to AAPL plus NVDA). Takaichi’s election win this weekend is expected to provide a tailwind to Japanese stocks.
While IGV has suffered a 33% pullback, it’ nearly inconceivable to think SPX could ever suffer the same fate. However, if it did, SPX would be just under April ’25 Liberation lows.
A concern of many is that Warsh is against using QE as a normalized part of the Fed’s playbook. The thinking goes (and I am guilty of this as well) is that if QE is not part of the equation, the Fed put strike is MUCH lower. If there’s a link between SPX and the Fed’s Balance Sheet, as reflected by 2009 to 2014, then NO QE is bearish. However, recent history reveals the link seems to have broken around 2023. Chart below. (Fed had stopped tightening, balance sheet was declining, stocks rose). Reserves were more than ample through that period; perhaps that’s why the relationship ended.
Asset prices seem to be the dominant factor for the US economy. In part, asset prices are supported by passive 401k flows. A more meaningful decline in employment, whether sparked by AI productivity or other factors, will remove a support pillar from stocks.
Thursday featured negative labor market stats: a big jump in Challenger layoffs, Jobless Claims 231k, and a large decline in JOLTS (job openings) to 6542, the lowest level since 2020. Payrolls are released on Wednesday February 11. Not sure if Trump is going to post it on Monday, or Tuesday.
This week:
Tuesday: Retail Sales expected at a solid 0.4%.
Wednesday: NFP expected 69k from 50k but BBG economics warns of a lower number as the birth/death model has been tweaked. According to BBG ECO the Final benchmark Payroll Revision is expected -863k.
Federal Budget balance for January
Thursday: Jobless Claims and Existing Homes
Friday: CPI and Core expected 0.3%. YOY 2.5 from 2.7 and 2.5 from 2.6.
Last week I posted an item from Crain’s Chicago, that an office building in Chicago’s financial district had sold at just $41 million, an 87% discount from the 2018 price of $306 million. There’s a new example this week, just two blocks west, opposite Willis Tower:
The University of Illinois is set to buy 92% vacant 250 S. Wacker Drive Chicago, Illinois for 26% of its price 15 years ago. Purchase price $23.8M. Last sold in 2011 to a venture of investment bank Credit Suisse for $90M. In 2024 its anchor tenant, Molson Coors, vacated around 167,000 SF. The property today has one remaining tenant occupying about 20,000 SF. 244,954 SF Built 1958 -Crain’s
OTHER THOUGHTS
There are a lot of trades going through SOFR options that are targeting lower rates, but not aggressively so. For example, buying of SFRZ6 9700/9750/9800 c fly. Center strike 2.5% vs current FF range 3.50 to 3.75%. Fly settled 5.25 ref 9686.5. Similar flies and condors went through on SFRU6; buyer 20k SFRU6 9675/9687.5/9712.5/9737.5 c cond 2.25. Settled there ref 9679.0. Decent size buying of SFRM6 9700c for 3.0. Settled 3.75 ref 9660. The general theme seems to be that a Warsh led Fed could get rates down to 2.5 to 3.0, but in a measured way, and probably not much lower than 2.5%.
Midcurve Feb options expire Friday, 0QG6 9687.5 straddle settled 10, as did 2QG6 9662.5^ as did 3QG6 9650^. All settle 10 vs SFRH7 9686, H8 9667.5 and H9 9645.0. Given economic data this week, I’d more likely be a buyer than seller, but just barely.
| 1/30/2026 | 2/6/2026 | chg | ||
| UST 2Y | 352.4 | 349.3 | -3.1 | |
| UST 5Y | 379.7 | 375.5 | -4.2 | |
| UST 10Y | 424.1 | 420.6 | -3.5 | wi 421.7 |
| UST 30Y | 487.4 | 485.5 | -1.9 | wi 485.3 |
| GERM 2Y | 208.5 | 208.2 | -0.3 | |
| GERM 10Y | 284.2 | 284.1 | -0.1 | |
| JPN 20Y | 317.2 | 312.3 | -4.9 | |
| CHINA 10Y | 180.7 | 180.6 | -0.1 | |
| SOFR H6/H7 | -43.5 | -47.0 | -3.5 | |
| SOFR H7/H8 | 18.5 | 18.5 | 0.0 | |
| SOFR H8/H9 | 23.0 | 22.5 | -0.5 | |
| EUR | 118.51 | 118.15 | -0.36 | |
| CRUDE (CLH6) | 65.21 | 63.55 | -1.66 | |
| SPX | 6939.03 | 6932.30 | -6.73 | -0.1% |
| VIX | 17.44 | 17.76 | 0.32 | |
| MOVE | 59.20 | 63.62 | 4.42 | |
