Could the Fed Cut 50 in October?
October 9, 2025
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–Not much worth noting in rate futures trading, aside from continued accumulation of call spreads based on SFRZ5 trading above 9650 (or higher). For example, more buying of SFRZ5 9650/9662.5cs for 1.25. SFRZ5 9650c have whopping 878k in open interest relative to 1.5m in Z5 futures, and settled 2.25 with 0.19d, ref Z5 9632s. In the September cycle, the (initial) call spread which was bought in huge size was SFRU5 9612.5/9625; ultimately went out worthless.
–Ten year yield nearly unch’d at 4.127%. Twos rose 1.4 to 3.582%. Thirty year auction today, closed at 4.722% yesterday.
–What could put the Z5 9650 calls in play? There are three weeks until the next FOMC on Oct 29. Nov Fed Funds at 9614 currently price high odds of a 25 bp cut at that meeting. (FFX5 rate is 3.86 vs current EFFR of 4.09, a difference of 23 bps). Anything on the three-week horizon that could shift expectations to 50? Nothing in yesterday’s release of the minutes is suggestive of a large risk. If anything, concerns about inflation have picked up.
Perhaps a stretched gov’t shutdown could be the spark. Is the First Brands bankruptcy a possible catalyst? Probably not, but it seems to be getting larger by the day. ZH reports “…an investigation into the car parts group’s off-balance sheet financing is examining whether collateral underpinning its financing was pledged “more than once” and “commingled” between lenders.” DOH!
This sort of circular financing and vendor finance is currently a hot topic as it relates to the AI boom. But nothing can stop that, right? Except maybe China shutting down rare earth exports, which they seem to be in the process of doing right now. From CNBC: “China has tightened export controls on rare earths and related technologies while barring its citizens from participating in unauthorized mining overseas, adding fresh strains to a sector central to its geopolitical leverage.”
Dude, rather than a $50 billion investment can you get your hands on some dysprosium and terbium?
On a more mundane topic, Redfin reports that “Roughly 56,000 U.S. home-purchase agreements were canceled in August, equal to 15.1% of homes that went under contract that month. That’s up from 14.3% a year earlier and marks the highest August rate in records dating back to 2017.”
https://www.redfin.com/news/home-purchase-cancellations-august-2025
–It’s all dependent on stocks holding up. Vincent Deluard, Director of Macro Strategy at StoneX mentioned in a presentation yesterday that capital gains are about 10% of individual tax receipts for the gov’t, a significant source of income. A loss of capital gains income can set the entire process in reverse.
