Volfgang Twins (grab a dance partner)
November 6, 2025
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–Tough day for rate futures. ADP solid at 42k, expected 30k. ISM Services stronger than expected 52.4 vs 50.8 exp. Treasury announced plans to keep auction coupon sizes as they currently are for next few quarters; the market had looked for more bill issuance to alleviate potential pressure on long-end yields.
In terms of issuance, the Committee recommended keeping nominal coupon sizes as well as TIPS issuance unchanged. The Committee discussed potential changes to coupon issuance in the future, and the timing thereof. Given the uncertainty of potential financing needs, the Committee was mixed on how Treasury should approach adjustments to its current forward guidance.
–Rate futures ended at the bottom of the range of the past two months. Ten year yield +7 bps at 4.157 with TYZ5 112-105. On the SOFR strip all contracts from U26 through golds (5th year out) were -6 to -6.5. Peak contract SFRH7 settled 9684.0 or 3.16% which is just 70 bps lower than the current Fed Effective of 3.87%. So that’s only around three 25 bp cuts, with Miran still calling for easing increments of 50 bps. Miran has at least one fan: new buyer late in the day of 20k SFRH6 9662.5/9681.25cs 2.75 (settled there ref 9639). There continues to be an appetite for these small otm call spreads, but the huge long in SFRZ5 9650/9662.5cs is currently underwater, as it settled 0.25 vs SFRZ5 9622.0.
–Everything one needs to know about the US economy is contained in the top two stories on Zerohedge today. Headlines: OpenAI CFO Seeks US Gov’t backing, Disappointed Market Doesn’t Have More AI “Exuberance” and Deutsche Bank Reportedly Starts Shorting AI Stocks to Hedge Data-Center Funding Risks.
In the first article, Sam Altman is all about the share value. When asked how a company with $13b in revenue can handle $1.4t in commitments, he says revenue is growing, etc, but also says there are plenty of buyers for OpenAI shares. Translation: We’re doing great things. Others believe in the magic, you should too. DB: It might be magical, but just in case it’s fantasy, we’ll hedge it.
Everyone knows the amounts of capex are staggering, and I suppose being in the middle of the extraordinary wealth driven by valuations makes it all seem like a perpetual motion machine. As Cem Karsan often says, “the liquidity is created by the market itself”. It makes the DB headline seem eminently sensible. They can’t ALL win, so we better have some puts on this stuff, since we know we’re not getting repaid by everyone. One would think NVDA head Jensen Huang saying “China is going to win the AI race” would cast a sobering cloud over this party, but the music is still playing.
The problem, well maybe it’s not a problem for everyone, is that the music is Icelandic Heavy metal. Sans chairs.
–I was going to mention a couple of things about the Fed’s Consumer Debt and Credit report, but we all know there’s a lot of unpaid student debt. It’s all irrelevant if the AI infrastructure implodes.
