Curve steepening, but it’s already been a big run
September 25, 2024
*********************
–New high settle 9607.5 in SFRZ4. Curve trades made new highs, 2/10 up to 19 (3.546, -2.6 bps and 3.736, -0.2 bp). 5/30 up to 61, also a new high. Slight new high in 10y breakeven at 218 bps. On the SOFR strip, Z4 +3.0 at 9607.5, Z5 +3.5 at 9714 (peak contract), Z6 +2.5 at 9704 and Z7 +1.0 at 9690.
–Consumer Confidence awful at 98.7 and the Present Situation was at its lowest reading since Covid at 124.3. In comparison, in 2019 it averaged around 170.
–Today’s news includes New Home Sales expected 700k from 739k last. 5-yr auction. Powell speaks on Thursday.
–I’ve included a chart of SFRZ4/M5/Z5 six-month butterfly. Prices are 9607.5/9697.5/9714.0. So the near six-month spread settled -90 and M5/Z5 settled -16.5 yielding a fly value of -73.5. Just another visual representation of market expectations of concentrated easing in the first half of next year followed by a soft glide. Not to overstate it, but if the easing cycle were expected to be in 25 bp increments at every meeting, then the fly would be a lot closer to zero.
