A Lower Strike Fed Put
January 20, 2026
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–It could be the beginning of a large risk-off adjustment, but this time not just stocks are wobbly, so are long-dated treasuries. 10y yield now 4.286, up 6 bps from Friday; I project the target from the Sept thru Dec bottom to be around 4.43. The 30y target is 4.98 and it’s getting close, at 4.928 this morning. (5:30 EST) USH6 is currently 114-05. The last time the 30y yield exceeded 5% was in mid-July at 5.02; at that time the front US contract traded as low as 111-11. I currently calculate 5% at around one point away, or around 113-05 on the USH6 contract; I would expect that area to be strong support/resistance.
–Note that Japan yields continue to soar. On Friday 10y JGB was 2.18, now 2.35 and the 20y was 3.16, now 3.45. Since the beginning of November, 20y JGB is up 85 bps.
–Front end SOFR contracts seeing small bid on general turmoil. SFRH7 which has been peak contract on the strip -vying with SFRZ6- settled Friday at 9673 and is now 9677. Recall that previous blow-ups have seen reds get to 9715-9720 area. Somehow I don’t think Powell is going to be quite as accommodative to market stress if things begin to unravel. My thought is that Trump has single-handedly lowered the Powell put strike with respect to equities. ESH6 is currently only down around 112 at 6864.5 and is holding the 100 DMA. I saw a BBG headline flash that traders are piling into otm VIX calls; Jan VIX settles tomorrow and is currently around 20. The peak open interest strike is 20c with 225k of open interest. The 25 strike has 155k open.
–On Friday there was a buyer of 200k 2QM6 9600p for 3.0 around 9653.5 in underlying SFRM8. Settled 4 vs 9650 with open int +84k. Current 9651.5.
