Asset Price Inflation
June 17, 2026
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–CLQ6 is near 75/bbl this morning, helping to support bonds on the prospect of lower inflation going forward. Tens eased 4 bps yesterday to 4.426%. SOFR contracts rose 3.5 to 5.5 from reds through golds. Lowest SOFR contract SFRM7 settled 9606, +3.0 and peak SFRZ8 settled 9621.5. +5.0. The last two Fed SEP projections, in December and March, pegged end of-year FFs for 2026 and 2027 at 3.4 and 3.1 pct; one EASE embedded in each given current FF mid of 3.625%. SFRZ6 currently has one HIKE priced at 9611.5 (3.885) and SFRZ7 is 9613, with Z6/Z7 spread having once again inverted. Ten year tip breakeven notched a new low 230.6 bps.
–Today is Warsh’s debut as Fed Chair. A few hedges placed for possible hike/ hawkishness. New buyer 25k SFRN6 9600p for 1.0 (ref 9624 SFRU6) and seller of about 50k FFQ6 at 9635.0 (also worth noting that Fed Effective ticked up to 3.63 from 3.62).
–As mentioned yesterday, asset price inflation is likely a much bigger worry than goods prices for the Fed. This morning BBG has a story on Bank of Korea being concerned about soaring bonuses (wealth) at tech firms:
The Bank of Korea warned that soaring bonuses at major technology firms could fuel broader wage growth and stronger consumer demand, complicating the inflation outlook.
–Options on interest rates continue to see premium declines, indicating little expectation of a Fed surprise. Here’s an example: On Friday, SFRM7 settled 9599.5 and the 9600p at 38.75 (straddle 77.0). Yesterday, SFRM7 settled 9606 (+6.5 from Friday) and M7 9600p settled 31.5, down 7.25 from Friday (for a 50 delta option!). The 9600c went from 38.25 Fri to 37.25 yesterday, so calls actually lost a bp on a 6.5 bp rally. Straddle now 68.75. TYU atm straddle was around 2’04 several sessions ago, settled 1’44 yesterday.
