US rate markets chill in front of FOMC
September 15, 2025
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–MOVE Index ended Friday at the lowest level since early 2022 at 73.37. Treasury curve has been flattening thru the month of September, with 2/10 ending at a new recent low 105.5 (high near 123 on 02-Sept). On Friday, SFRU5/SFRU6 one-year calendar went out at -100.75 bps (9596.75/9697.50). FFV5/FFV6 settled -106.5 (FFV5 already has Wednesday’s 25 bp ease priced, 9595.0/9701.5). However, the new front one-year calendar, SFRZ5/Z6 is -68.0 (9636.5/9704.5). This spread will likely have the tendency to roll lower, though it was already as low as -80 at the end of August. The takeaway is that the market is hesitant to project an easing schedule anywhere near Trump’s hopes. Looking at approx 4 eases per year…
–SFRZ5 9637.5 straddle settled 20 vs 9636.5. Seems cheap to me given the environment. Current EFFR is 4.33%. Strike is 3.625%. A 25 bp cut at every meeting into end of year (3 mtgs) would be 3.58%, right at the SFRZ strike. Can we be that certain with 88 days to go? Is 20 bps enough of an insurance policy? Some new buying Friday of SFRZ5 9625/9612.5p 1×2, which settled 1.25.
–News today includes Empire State Mfg expected 5.0 from 11.9. Retail Sales tomorrow and FOMC Wednesday.
