Bondra
May 23, 2025
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–Yields fell yesterday with 5s and 10s down 4.6 bps to 4.109% and 4.549%. However, 30s were only down 2.5, and 5/30 spread edged to a new high. I marked it just over 95 bps; BBG has the April 30 high at 94.9, I marked it 93.1 at the time of futures settle on Apr 30. Post GFC in 2010 this spread reached a high of 304 bps. Not shown on the five year timeframe chart below, but 100-105 should act as solid resistance. Whether its ‘term premium’, or concerns about the unsustainable negative spiral of US gov’t finances, or the price of rice in Japan (up 98.4% yoy with Core CPI +3.5%), or a monster butterfly (Mothra) flapping its wings somewhere, the US long end trades heavy.
they just don’t make them like that anymore
–For the past several sessions there has been buying of otm calls on SFRM5, notably 0.5 for 100k 9650c. Three weeks until option expiration. Yesterday a new buyer of >100k M5 future from 9568.5 to 9569.25. Settled 9568.25 with open interest in M5 up 103k, while aggreagate OI across all SOFR contracts was only up 104.5k. On May 21 the SOFR RATE setting was 4.26 or 9574, a new low. Surprising that SFRM5 remains anchored near the Fed Effective rate of 4.33% or 9567.
–SOFR option pit closes at noon Chicago time (1pm EST) and the treasury market closes at 2:00 pm EST, but of course CME electronic stays open until regular time.
