Bigger risk premium for long assets
November 16, 2025 – Weekly comment
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NOTE: RJ O’Brien is now a division of StoneX, a publicly traded company (SNEX). Any readers looking to discuss a new clearing arrangement with RJO/StoneX please contact me directly. amanzara@rjobrien.com
Quick notes this week. The treasury futures roll should be quite active and interesting this cycle with several factors at play. First, aggregate open interest in TY, UXY and WN are at record levels outside of the spikes associated with the last roll cycle (charts below). Second, the odds of a December rate cut have become quite fluid, with Jan Fed Funds now indicating around 50/50 for a 25 bp cut at the December 10 FOMC. Third, pressure on repo rates continues with SERX5 (one-month SOFR) settling Friday at 9601 or 3.99%, just 1 bp lower than the Fed’s Standing Repo Facility (4.0%). On Wednesday, NY Fed President Williams met with Wall Street banks to discuss usage of SRF and issues relating to repo, as transactions occur well above 4%. From Reuters: “Roberto Perli, the official responsible for implementing monetary policy, said on Wednesday that firms needing to use the central bank’s standing repo facility should tap it when needed, adding that large-scale usage would not be problematic.” I.e. no stigma.
On the week, the US 10y yield rose about 4.5 bps to 4.146% and 30y rose 4.6 to 4.745%. However, other bond markets had larger moves. Japan 10y yield was 1.085 at the end of 2024, ended Friday at a new high 1.704. The 20y has gone from 1.882 at the end of ’24 to 2.715 (also a new high, +10 bps on the week).
UK 10y Gilt now 4.57, up nearly 20 bps from Tuesday’s low of 4.39. Reeves scheduled to release the budget on November 26. Bunds also finished the week on the low, with the 10y yield at 2.719, up 5.4 on the week.
On Friday KC Fed’s Schmid gave a speech with a section on the Balance Sheet; he favors “…the smallest and least distortive balance sheet” for the Fed’s operations.
https://www.kansascityfed.org/speeches/maintaining-the-balance-in-monetary-policy/
Here’s a clip [argues for steepeners at a time when global long end yields are already seeing upward pressure]:
Even without changing the overall size of the balance sheet, the Fed can take action to lessen its footprint in financial markets. Currently, our asset holdings are disproportionately weighted towards long-duration assets, which distorts the price of duration, lowering long-term rates and artificially flattening the yield curve. By shifting our holdings toward shorter-duration securities we can decrease this distortion.
A couple of BBG snippets cited by Credit Bubble Bulletin:
November 14 – Bloomberg (Rene Ismail): “CoreWeave bonds issued earlier this year hit fresh record lows Friday and were leading high-yield decliners amid a tech stock-led selloff in global markets. The data-center firm’s 9% note due 2031 fell 1.75 cents on the dollar to 93.25 cents…”
November 14 – Bloomberg (Gowri Gurumurthy): “US junk bonds tumbled Thursday, posting their worst one-day loss in nearly five weeks… Yields jumped the most in five weeks to 6.89% and risk premium climbed to 291 bps. Losses swept across ratings tier, with CCC yields rising 18 bps to a near three-month high of 10.29%. Spreads widened 15 bps, the most in five weeks, to 652.”
CRWV went public in March. The stock hit 187 in June, and ended Friday at 77.36. At the start of October, CRWV 9.0% of 02/01/2031 was 103.67. Ended Friday at 94.08, a yield of 10.5%. If I collected the right data, 5y CDS now 622 bps from 393 one month ago.
Other signs of stress: On Dec 31, 2024 (according to BBG) the range in bitcoin was 91818 to 96142. Friday’s low was within this range, at 94147, essentially flat on the year, having reached a high of around 125k in October. In July Michael Saylor’s MSTR was 450. Ended Friday just below 200, a new low for the year. Market cap $57.4B. Debt at end of 2024 including convertible debt was $8.22B.
EUR/CHF new low this week of 0.9180, lowest since the 1.20 peg broke in 2015. By 2018, it had climbed back to 1.20, but has slid ever since.
From Thursday’s WSJ ‘Chinese Hackers Used Anthropic’s AI to Automate Cyberattacks’. Ruh-roh.
News this week includes FOMC minutes on Wednesday, immediately followed by NVDA earnings. On the consumer side, TGT pre-open on Wed and WMT post-close Thursday. Sept NFP will be released on Thursday morning.
Below are futures charts with Aggregate Open Interest (blue lines).
FVZ5 DV01 42.9, FVH6 45.1.
Note on TY: primarily due to the big covered call buyer in TYF6 113.5 and 114 calls, there is already open interest in TYH6 of 214k contracts. (Long ~200k TYF 113.5c and ~115k TYF 114c). Market makers hedging negative gamma in TYH6 might have a marginal tendency to compress the spread on hard price rallies and bid the spread on price breaks.
DV01 TYZ5 66.7, DV01 TYH6 68.0 (March 2% higher duration
DV01 UXYZ5 89.5 DV01 UXYH6 91.2
USZ5 DV01 126.4, USH6 DV01 140.5.
Note, the CTD changes to longer duration bonds on a yield rise of less than 20 bps. The one-to-one bond roll will likely be quite volatile. But even duration weighted will likely see plenty of movement.
WNZ5 DV01 184.7, DV01 WNH6 184.5
Last week I mentioned CME’s credit products. This is the time for these contracts!
Since September, HYBZ5 has traded in a range from ~730 to 740. This contract settles to BBG US Corp High Yield Very Liquid Index (LHVLTRUU <index> ). Contract size $150 * index. There’s not much open interest, just 2400 contracts. However, I think it’s worth watching as a reasonable risk/reward short in case of a stock market blow-up. In late March, the June contract was 700 but traded below 670 in early April.
Settled 732.40 on Friday, low of 731.
https://www.cmegroup.com/markets/interest-rates/credit.html
| 11/7/2025 | 11/14/2025 | chg | ||
| UST 2Y | 355.5 | 361.0 | 5.5 | |
| UST 5Y | 367.9 | 373.1 | 5.2 | |
| UST 10Y | 410.4 | 414.6 | 4.2 | |
| UST 30Y | 469.9 | 474.5 | 4.6 | |
| GERM 2Y | 198.7 | 203.4 | 4.7 | |
| GERM 10Y | 266.5 | 271.9 | 5.4 | |
| JPN 20Y | 261.5 | 271.6 | 10.1 | |
| CHINA 10Y | 180.5 | 180.6 | 0.1 | |
| SOFR Z5/Z6 | -66.0 | -67.5 | -1.5 | |
| SOFR Z6/Z7 | 7.5 | 7.0 | -0.5 | |
| SOFR Z7/Z8 | 19.5 | 19.0 | -0.5 | |
| EUR | 115.66 | 116.21 | 0.55 | |
| CRUDE (CLZ5) | 59.75 | 60.09 | 0.34 | |
| SPX | 6728.80 | 6734.11 | 5.31 | 0.1% |
| VIX | 19.08 | 19.83 | 0.75 | |
| MOVE | 74.41 | 79.71 | 5.30 | |
