I can recall when there were RULES against front-running
January 9, 2026
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–Payrolls expected +70k
Unemp rate expected 4.5% from 4.6%
Prelim Mich Sentiment expected 53.5 from 52.9
1y inflation 4.1% from 4.2%
–Huge trade of the day, buyer of approx 230k 0QU6 9750c, mostly paid 7 outright for 150k, then paid 7 covered 9678 (17d) for 45k and 7.5 (17d) vs 9680 for 35k. Prelim CME open interest report did not capture the volume, though total open interest in the strike reportedly +159k to 201k. Settled 7.25 vs SFRU7 9678.5.
–Amusing that this call option with 2.5% strike was bought in nominal size of $230 billion just before Trump blasted a social media post instructing his representatives to buy $200 billion in mortgage bonds. Apparently that edict falls to the FHFA, and it has previously been reported that mortgages retained on Fannie and Freddie balance sheets had already expanded by $55 billion. I.e. the intervention was ALREADY occurring. While bonds rallied on Trump’s post, I’m not at all sure that the kneejerk reaction makes sense. Federal gov’t meddling in every aspect of the economy in haphazard fashion will likely pump up term premium.
–Could be worse. It could be raining (or could be Iran).
–In any case, at the 2pm Chicago settle, TYH was 112-08 with 10y yield +4.7 bps to 4.181. Post Trump TYH rallied to 112-125, but this morning it’s back to 112-055.
–I’ve added a chart I posted on X, of the rolling second slot red SOFR contract. All red SOFR contracts have been capped at 9720 to 9730 over the past 4 years. It’s somewhat interesting to compare that cap with the prevailing FF rate. For example, in early 2023 we had the Regional Bank flare-up with SVB failure. SFR7 to 9731 with FF 4.625%. That is, the forward SOFR contract traded around 193 bps BELOW FF. In August of 2024, the yen-carry panic hit, prompting the Fed to cut 50 in Sept. SFR7 to 9727 with FF 5.375% or 264 under (or 214 under given the 50 bp cut). April 2025 Liberation Day, SFR7 9728 with FF 4.375 or 165 under. So, it hasn’t been uncommon for reds to trade WELL below FF on blow-ups. With current FF 3.625, if the reds were to trade just 150 under, that would be 2.12 or 9788. It happens once a year….
