Flatter for FOMC
June 18, 2025
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–Yields eased going into today’s FOMC as Israel/Iran conflict heightens risks and retail sales came in soft. Tens down 4 bps to 4.389%. Front end remains anchored in the mud at the current policy rate of 4.25-4.5% while awaiting clarity. Contracts that are pricing forward yields are floating to the surface. Red pack +4 bps to 9669.5 or 3.305%, about 100 lower than the Fed’s current policy stance. New lows in all near one-year calendars in SOFR. The lowest is SFRU5/SFRU6 at -81 (9585, -2.0 and 9666, +2.5). SFRZ5/Z6 is at a new low -63 (9609, -2.5 and 9672, +4.0). Dot plot from March indicated end-of-2025 at 3.9% and end-of-2026 at 3.4%, which would suggest -50 for Dec/Dec. The market is leaning toward larger forward easing prospects. Note that SFRZ6 is the peak contract on the SOFR strip at 3.28%, and that many option spreads have been initiated based on the idea that Z5/Z6 calendar would naturally roll lower over time.
–New low as well in 2/10 at 44.3 bps (3.946% and 4.389%). Tens can’t seem to get far from the current Fed Effective Rate of 4.33%.
–Quick note on oil (WTI). On 6/11, one week ago, prices were already starting to move higher. On 6/11 CLQ5 settled 66.90 and the Aug 67 straddle settled 6.12 (expiring July 17). Yesterday CLQ5 settled 73.27 and the CLQ5 73 straddle settled 11.33! This morning, even with futures now lower on the day at 72.40, -0.87, CLQ 73 puts have LOST value.
–Today’s news includes Jobless Claims, last at 248k, and Housing Starts. Tomorrow’s holiday session will not have official settlements. Screens open until noon Chicago time.
