A few pricing notes
May 4, 2025 – weekly comment
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The week ended with NFP printing +177k, alleviating economic fears and pushing easing prospects further into the future. PCE price data, which was released Wednesday, showed 0% month/month, with yoy at +2.3% and Core +2.6%, nearing the Fed’s target. PCE prices yoy have been between 2.8% and 2.1% since the start of 2024.
On the week, yields rose, with twos +7.6 bps to 3.838%, tens +5.6 to 4.322% and thirties +5.7 to 4.793%. The big moves came Friday, with 2s +13.9 bps, 10s +9.7 and 30s +6.1.
The two year yield is still about 6 bps lower than its level on April 1, just before Liberation Day. The yield is now 50 bps below EFFR of 4.33%. However, the ten-yr is about 15 bps higher than April 1, and thirties are 27 bps higher and fully above the range from March. The thirty-year yield appears poised to retest 5%.
FFK5 settled 9567.5, essentially matching the current 4.33% Fed Effective rate, meaning that no chance of ease is being priced for this week’s FOMC. Both Goldman and Barclay’s (and perhaps others) pushed back their estimates for the next ease to July from June. FOMC calendar: Wednesday, followed by June 18 and July 30. August is a ‘clean’ month with no Fed meeting. FFQ5 settled 9593.0 or 4.07% which prices certainty of one cut. (4.33 – 0.25). The previous week FFQ5 settled 9604.
SFRU6 has been the peak contract on the SOFR futures strip for some time. I’ll highlight one trade which occurred first thing Thursday morning, a seller of 15k 0QU5 9712.5c at 33 to 32 ref 9711.5. Thursday morning was top in rate futures’ prices. I posted the chart below on X; it’s the rolling 2nd red future, identified as the 7th quarterly contract on BBG. 0QU5 9712.5c settled 19.25 on Friday, as vol was crushed into the end of the week. I mention this specific trade because it caught the
absolute top on the peak contract, and seems to further establish perceptions of a capped level on the reds of around 2.5% or 9750. That’s not to say that hedges aren’t being placed for an absolute collapse. For example, into the end of the week SFRU5 9800c were bought in size of 50k ~2.0, settled 1.75 vs 9615.5, and SFRZ5 9900c 1.25 paid 40k, settled 1.0 vs 9644.0.
One other interesting note on SFRU6. There was a large call spread roll Friday from 0QU5 9700/9725c spread into 0QZ5 9700/9725cs, paying 1 for the Dec, 100k. Settled 7.5 for 0QU5 and 8.5 0QZ5. The futures spread, U6/Z6 settled 0 with both contracts 9679.5s. Throughout April, that calendar had been positive 0.5 to 3.5, i.e. SFRU6 higher in price than Z6. Just another small indication that easing expectations are edging further out the curve.
A few news clips below:
From Charlie Bilello on X:
Incredible: Amazon’s AWS revenue over the last 12 months ($112 billion) was higher than the revenue of 468 companies in the S&P 500. $AMZN
Also on X:
Torston Slok [Apollo] warns that this morning’s employment data was collected the week after Liberation Day tariffs were announced and that the correlation to University of Michigan survey data suggest that employment is set to turn lower and “perhaps even negative.”
From the Atlantic ‘Don’t look at the stock market. Look at the ports’:
The Port of Los Angeles, the busiest in the Western Hemisphere, processes about 17 percent of everything the United States imports or exports in shipping containers. The adjoining Port of Long Beach accounts for another 14 percent.
Eugene Seroka, the executive director of the port of LA …estimated that cargo arrivals would soon be down 35 percent over the same time last year. [leading to massive layoffs in trucking and other related infrastructure]
From the South China Post (April 29). [don’t expect a quick resolution on US/China tariffs]
China’s state media has urged the public to revisit Mao Zedong’s famous 1938 essay “On Protracted War”, saying that it offers “great inspiration for the international struggles of the new era” amid the protracted economic hostilities with the US.
The article’s timing coincided with a hardening of Beijing’s public messaging against Trump’s tariffs – including the dismissal of speculation that any progress had been made in bilateral communications.
SPX rose 2.9% this week and, on a closing basis, has retraced almost exactly 0.618 from the Feb ath of 6144 to the April 8 low 4983. Friday’s close 5687; the 61.8 is 5700. On the ES futures contract, open interest on April 2 (Liberation Day) was 2.11 million. By 4/8 (the low) open interest had jumped to 2.33 million, an increase of about 10% which I attribute to demand for hedges. As of Friday, those hedges have mostly been lifted, with OI back down to 2.15m. VIX declined to 22.68 from 24.84 the previous week. I would suggest that hedges are again advisable from here.
This week treasury auctions 3s 10s and 30s on Monday, Tuesday and Thursday. FOMC Wednesday.
| 4/25/2025 | 5/2/2025 | chg | ||
| UST 2Y | 376.2 | 383.8 | 7.6 | |
| UST 5Y | 388.5 | 393.2 | 4.7 | |
| UST 10Y | 426.6 | 432.2 | 5.6 | wi 432.7 |
| UST 30Y | 473.6 | 479.3 | 5.7 | wi 478.8 |
| GERM 2Y | 171.9 | 176.2 | 4.3 | |
| GERM 10Y | 247.0 | 253.3 | 6.3 | |
| JPN 20Y | 222.4 | 221.0 | -1.4 | |
| CHINA 10Y | 166.1 | 162.8 | -3.3 | |
| SOFR M5/M6 | -95.5 | -94.5 | 1.0 | |
| SOFR M6/M7 | 9.0 | 3.0 | -6.0 | |
| SOFR M7/M8 | 23.5 | 21.5 | -2.0 | |
| EUR | 113.62 | 113.00 | -0.62 | |
| CRUDE (CLM5) | 63.02 | 58.29 | -4.73 | |
| SPX | 5525.21 | 5686.67 | 161.46 | 2.9% |
| VIX | 24.84 | 22.68 | -2.16 | |
| MOVE | 105.79 | 101.40 | -4.39 | |
