Cover your ass
June 3, 2025
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–June SOFR options expire a week from Friday. SFRM5 has traded 9571 to 9567 since middle of May, settling Monday at 9568.75. Yesterday, otm calls were bought: 20k M5 9600c for 0.5, 30k 9631.25c for 0.25 and 35k 9662.5c for 0.25. Also a buyer of 30k SFRN5 9675c for 1.25 (SFRU5 settled 9590.5. It’s likely that Ukraine’s attacks on Russian airfields convinced some to cover tail risks. The base case is still articulated by Dallas Fed’s Logan: the Fed can afford to wait given the current data. But the base case doesn’t account for outliers.
–Eurozone inflation now below the 2% target at 1.9%. This morning June euribor is 9801 or 1.99%, essentially equal to inflation. ERU5 is 9816.5. By contrast Friday’s US PCE yoy Price Index was 2.1% and Core 2.5%, a midpoint of 2.3%. SFRM5 is 200 bps higher at 4.31%. SFRU5 is 4.10%.
–Of course, potential inflationary effects of tariffs still loom.
–5/30 treasury spread made a new high just under 98 bps. 5y yield +3.3 at 4.014% and 30y +6.1 at 4.993%. Long-end of US curve continues to trade under a haze of suspicion. 5/30 low this year is 34.5 bps in Feb. Low associated with Regional Bank problems in March 2023 is -46. High in early 2021 was 163 of course at that time 5’s were around 75 bps.
–Today’s news: Factory Orders, Durables, JOLTS. The latter expected 7100 vs 7192 last. Low of this cycle has been 7103 in Sept of last year.
