Pinned forward rates?
August 6, 2025
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–Ten year yield little changed yesterday at 4.194% in front of today’s auction. 30s tomorrow. However, the front end was pressured as “the Treasury said it plans to auction $100 billion in U.S. debt that expires in four weeks, after selling a record amount of six-week bills on Tuesday.” Weakest SOFR contracts on the strip were SFRZ5, 9525 (-4.0), H6 9648.0 (-4.5) and M6 9671.5 (-4.0). Indication of curve flattening: Z5 9625, -4.0, Z6 9695.0, -3.0, Z7 9684.5 -1.0 and Z8 9663.5 -0.5. New seller of November one-month SOFR vs FF. Spread settled -4.0 bps, down -0.5 on the day, SERX5 9602.5, and FFX5 9606.5. Open interest up 18k in both. Indications of money-market tightness.
–New buyer yesterday of >40k SFRZ5 9625/9637.5/9650/9662.5c condor which settled 2.75 ref 9625.0. Works best with 3.5-3.75% FF target by the Dec FOMC, the date of which is 10-Dec (SOFR options expire 12-Dec). Also a large package buyer of 0QH6 structure: +60k 9725c 20.0s, -100k 9750c 13.0s, +20k 9762.5c 10.5s and +20k 9775c 8.5s. SFRH7 is peak contract on the strip, 9697.0s
0QH 9725/9750cs settled 7.0
9725/9750/9762.5 c fly settled 4.5
9725/9750/9775 c fly settled 2.5
Reds have pretty much been capped between 9700 and 9720.
–We’re seeing targeted option structures, though I think a new Fed, along with a number of other slippery variables, could create a lot of back and forth in SOFR prices.
