Eat another breadstick. They’re FREE!
September 19, 2025
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–Continued unwind of trades predicated on a more dovish Fed. Ten year yield +3.2 bps at 4.102%. Peak SOFR contract, SFRH7 was -3.5 at 9701.5, right around 3%. (High settle Tuesday 9712) Near SOFR 1-yr calendars made new recent highs, for example, SFRZ5/Z6 which is now the lowest, settled -65.5, +2.5 on the day (9635/9700.5). This spread had been as low as -80. SFRH6/H7 settled -43.0, +2 on the day, against a recent low of -57.5. These spreads suggest that forward easing will be a slow-moving process. FFV5 settled 9593.0 or 4.07% compared to new EFFR of4.08%. FFV6 settled 9700.5 or 2.995%, indicating another 100 bps of easing over the next year.
–There was an early buyer of SFRZ5 9650c for 2.75, settled 3.25 vs SFRZ5 9635.0 (-1.0). Great long for those who need upside insurance in case the Fed is forced into aggressive easing for something crazy, and there are a lot of candidates. Taking advantage of long liquidation currently underway – SFRZ5 open interest fell 64k. Vol has also cheapened.
–BOJ held rates but announced it is paring back holdings of ETFs and REITs. Nikkei was down about 0.6%.
–‘When you’re here, you’re family.’ In another crack of the American consumer, Olive Garden (unlimited breadsticks) parent Darden released results and the stock fell 7.7%. Full year comp revenue expected +2.5% to +3.5% for 2026. (Holding steady with inflation).
–Chgo Fed Nat’l Activity today. I am taking off early today. No weekend or Monday missive.
