Notes
August 11, 2025
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–Friday featured higher yields with 2s up 2.6 bps to 3.758 and 10s up 3.9 bps to 4.283%. Two year is 57.2 beneath EFFR (4.33) and tens at 4.7 under. Bowman this weekend said she thinks Fed should cut 3 times this year. EFFR is 4.33 to that would mean 3.58 or 9642.0 by Dec. Currently FFF6 is 9627.0 or just 15 bps away. SFRZ5 settled Friday at 9625.5. On the SOFR strip, reds, were down 4 to 9686 or 3.14%, while greens, blues and golds (3rd, 4th, 5th years) were -4.5.
–NVDA and AMD agree to pay 15% of China chip sales revenues to the US gov’t. CPI is tomorrow, along with grain report.
–Buyer Friday of 30k TYU5/Z5 115c calendar for 24. Just rolling into long Dec calls which settled 25 ref TYZ5 111-27, with 20d. Continued buyer of SFRU5 9612.5/9625cs for 1.5 (over 50k Thursday/Friday. Requires perception of a 50 bp cut in Sept). There continues to be buyers of downside in case the Fed holds pat against extraordinary political pressure. Example, buyer of 10k SFRX5 9575/9568.75ps for 0.5. While front end option plays are concerned with Fed policy going into year-end, the peak contract on the SOFR curve is SFRH7 at 9689, and SFRZ6 is close at 9687.5. Both consistent with a ‘terminal’ rate of around 3%. Peak open interest level in 0QZ calls is 9700 strike with 264k open, settle 18.5. SFRH7/H8 settled 18 bps (9689/9671). Faster than anticipated easing would likely see back spreads rally significantly.
