Expectations Muted
December 23, 2025
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–Yields edged a bit higher, led by shorter maturities given the 2y auction yesterday and 5s today. Two-yr ended just over 3.507% up 2.4, right at the lower end of the FF target range (3.5-3.75). The 5y is closer to the upper end of target, with wi ending at 3.723%. On the SOFR strip, reds were weakest with red pack -4.125. Front March, SFRH6 -1 at 9648.5, H7 -4 at 9686.5, H8 -3.5 at 9687 and H9 -2 at 9647.5.
–One-year calendar spreads are projecting a tame year. FFF6/FFF7 is -57.5. SFRH6/SFRH7 is -38. Sort of a 1 or 2 ease forecast despite a new Fed Chair. Miran yesterday said he wasn’t sure whether he would vote for 25 or 50 at the next meeting.
–Looking at forward spreads, SFRH7/H8 is +19.5, SFRH8/H9 is 19.5 as well. Europe synched up: ERH7/H8 +28, ERH8/H9 21.5. SFIH7/H8 21.5, SFIH8/H9 19.5. Forward yields up about 1/4% per year.
–Trade was light, but the TY covered call buyer executed another 50k buy: +50k TYH6 113.0c covered 112-135, 37d, pay 36 (1’45 straddle).
–Attached is Consumer Confidence and Expectations (in blue). U of Michigan Sentiment is at historic lows. These numbers are well above GFC lows (but also well below Trump’s first term).
