Curve Implosion
June 19, 2026
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–Thursday featured continued curve flattening as the attached image shows. Since the beginning of Feb, red/gold SOFR pack spread has gone from 72 bps to zero. It settled +1.625 bps with the red pack 9606.5 and gold pack 9604.875. 2/10 is now 27.4, down 1.5 on the day; high in Feb was over 60. The 4% level has sort of been a cap with respect to the SOFR strip, although the weakest contract, now SFRH7, settled at a new low 9585.5 (4.145%).
–When the Fed started to raise rates in 2022, the near SOFR calendars were all positive, meaning that subsequent contracts traded at higher rates, because it was clear that more hiking would occur (not much of a stretch when starting from zero). But with the current Fed midpoint of 3.625%, the market is hesitant to price in a series of hikes. In fact, by Q2 of next year there’s a bias toward ease: SFRH7/M7 is inverted at -3.5 (9585.5/9589). The one-year calendars are illustrative: SFRU6/U7 is +10 (9606/9596) while SFRZ6/Z7 settled negative 14 (9590.5/9604.5) and H7/H8 is -25.5. Z/Z was as high as +8 trade prior to the FOMC, so that spread flipped by almost 1/4%.
–The weakest contract on Thursday was front Sept SOFR, 9606, down 7.5 bps. The 30y bond actually fell 2 bps in yield to 4.90%.
Red denotes new 20 sessions low.
