Buy one, sell the other
November 5, 2025
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–Yields eased slightly as risk was re-priced. SPX down 1.2%, Nasdaq Comp -2.0%. Bitcoin hit 125k exactly one month ago, and dipped below 100k yesterday, for a nice
round 20% ‘correction’. Ten year yield fell 1.8 bps to 4.087%. Twos thru thirties down 1.6 to 2 bps. Same with the SOFR strip, all contracts out five years were +1 to +2, with SFRH6 and SFRM6 the strongest at +2.0 (9643.5 and 9666.5). A lot of ‘wealth’ has evaporated.
–SERX5 settled at exactly 4% or 9600 (+1.0). The Fed’s standing repo facility was tapped than $5 billion yesterday vs $50b at month-end. The great repo panic has abated for now.
–Somewhat interesting? SFRM6 and SFRU8 settled at exactly the same price, 9666.5. Which one should we buy, and which to sell? I can easily make the argument either way. Just looking at curve roll, the same spread three months forward is SFRH6 to SFRM8, with prices of 9643.5 and 9671. So the front spread rolls down 23 bps and the deferred 3-m spread rolls up 4.5 bps. So the spread moves to -27.5; picks up about 9 bps per month. Simple, right?
I’m not sure who said this first, but a friend mentioned it to me years ago, “THE ROAD TO HELL IS PAVED WITH POSITIVE CARRY”
Obviously the reason SFRM6 is so much higher than H6 is due to easing expectations. Powell’s term ends in May, one might expect a new chair to aggressively ease. Perhaps SFRM6 is cheap with a rate of 3.335%. Why not closer to 3%? And IF easing does end up being enthusiastic, might not inflation expectations soar? In which case, SFRM8/U8 might move up from +4.5 to something like +12.
