Little concern about outlier CPI
January 13, 2026
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–BBG headline: Takaichi’s Early Japan Election Plans Jolt Yen, Bonds and Stocks. New high in 10y JGB yield at 2.17. $/yen is nearing the 2024 high (yen weaker), currently 158.91 (161 in 2024). Nikkei up 3% to a new high 53549.
–Early weakness in US stocks and bonds related to a criminal probe into Powell/Fed were shrugged off. Solid 3 & 10y auctions with 30y today. Yields ended just modestly higher with 10y at 4.185%, +1.5 bps, TYH6 -2.5/32 at 112-045 (early low 111-315). Peak SOFR contracts SFRZ6 and H7 settled 9681, both down 0.5 on the day. More deferred contracts out to golds were -1 to -3. Ten-yr note/tip breakeven continues to creep higher, now at 232 bps in front of today’s CPI. Implied vol in rates pressing lows, with TYH 112^ 1’11 or 4.0 vol. Example: new seller 7k TYH 111.5/113 strangle at 38. Settled 42 on Friday.
–In SOFR opts, new large trade +60k SFRJ6 9662.5/9675/9687.5 call tree for 0 to 0.25. Settles 7.75/4.75/3.0. These options have SFRM6 as underlying, which settled 9657.0, and expire 10-April. SFRH6/M6 calendar settled at a new recent high -17.5 (9639.5/9657.0). In my opinion, the tree (on its own) is threading the needle: requires perception of (or actual) ease, but not too much. If something happens which really requires EASING, being short the top call could be a problem. In previous cycles there had been a buyer of 12.5 wide otm call spreads in size, which consistently expired worthless. So maybe he’s selling the extra call to make sure that doesn’t happen again…
–CPI today expected 2.7% yoy headline and Core.
–Attached chart is SPX priced in gold. In local ccy SPX and Nikkei are in bull markets. Not so much when priced in real money.
