Choreographed and Scripted
June 24, 2025
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–Choreographed is the word BBG uses in its description of Iran’s attack on bases in Qatar, which was immediately followed by Trump saying he would like to refrain from further military engagement, and later, the announcement of a cease fire. It’s rumored that Qatar suggested the attacks on its soil, making sure no personnel were injured. Following the face-saving salvo, Saudi Arabia condemned the attack in ‘the strongest terms’…”constitutes a flagrant violation of international law and the principles of good neighbors. It is unacceptable and cannot be justified under any circumstances.” Qatar, summoned the Iranian Ambassodor to condemn the action. “This cafe is closed until further notice…I’m shocked, shocked to find that gambling is going on in here.”
–In the 1991 Gulf War, the risk metric was the 3-month bill vs eurodollar spread, the TED. It was normally around 20 to 25 bps if memory serves. I believe it was around 60 as the US was rumored to enter the ground war. On the night the US entered Kuwait, the spread collapsed. Risk-off unwind. That’s what happened to oil yesterday. In the recent ‘liberation day’ episode, CLQ5 hit a high of 70.43 on April 2. On April 9 the low was 54.13, a range of just over $16. Yesterday’s high was 78.40 and this morning’s low is 64.38, a range of $14.
–On reports of Iran’s scripted attack, stocks powered higher, oil fell. US yields ended lower on the day. The 2y fell nearly 8 bps to 3.827%, and tens fell 5.1 to 4.324%. SFRM6 was the strongest on the SOFR strip, ending +10 at 9668.0. Peak contract is still SFRZ6 at 9685.5 (+9.5). SFRU5/U6 1-yr calendar posted a new low -85.5 (-4.0). Inflationary implications from higher energy prices evaporated. In that context: Bowman says open to July rate cut if inflation contained. So… Waller and Bowman are both eyeing July. August Fed Funds (FFQ5) settled +1.5 at 9572.5. 5.5 lower in yield than the current Fed Effective, around 22% odds of a July ease. Powell’s testimony in front of Congress starts today.
–Also today, the 2y auction, followed by 5s, 7s, Wednesday and Thursday. Consumer Confidence expected 99.8 from 98.0 last. The low spike in April was 85.7, which was right around Covid lows.
