FOMC / Sentiment shift regarding future cuts
December 10, 2025
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–FOMC today. Fairly quiet session which featured a solid 10y auction, but rate futures settled at the low end of ranges. The treasury curve was flatter with 2s +3.2 bps to 3.611% and 10s +1.6 to 4.184%. 30y bond actually eased slightly in yield; USH contract +3 to 115-06 and WNH +5 to 118-11.
–On SOFR strip, SFRH6 -3 to 9640, H7 -4.5 to 9677.5, H8 -4 to 9664 and H9 -3 to 9646.5. Near calendars made new highs as red contracts lead to the downside. SFRH6/H7 is -37.5. up exactly 20 from a settle of -57.5 on 25-Nov. More on that below.
–Silver was the star performer, exploding to a new high. SIH6 settled 60.84. +2.43 and last print is 61.40 this morning. The gold/silver ratio has absolutely plunged. Chart will follow later today.
–There’s plenty of chatter about whether today’s FOMC will be a dovish or hawkish cut. In the medium term, I don’t know how much that matters. We’ll be getting a new Fed composition, likely with a wider array of pressures (unemp & inflation both pushing higher, and Trump flailing against both).
–I find the attached chart interesting. On Nov 4, I noted that calendar spread SFRM6 and SFRU8 settled zero. Both contracts were the same price, 9666.5. I asked rhetorically, which to buy and which to sell, nothing that the shape of the curve favored selling M6 and buying U8, just playing the roll. Indeed, the spread fell to -9 on Nov 26, 9671 & 9680. However, that marked the bottom and from there the spread (like other SOFR calendars) went straight up. Yesterday, SFRM6 settled 9659 and SFRU8 9655 for a spread of +4.
In the context of today’s FOMC, I would say that something happened at the end of November to change the psychology of FORWARD easing. What was the exact catalyst? On Nov 21, NY Fed’s Williams said he saw room for further adjustment (ease) and the market instantly pivoted from a hold at this Dec FOMC to a probable cut. Then Daly came out a couple of days later and said that she favored an ease (a signal directly from Powell, in my opinion). On Nov 25 Hassett emerged as front-runner for the Fed chair. On Wednesday, Nov 26, there was a buyer of over 50k SFRH6/SFRM6 spreads at -25.5 to -25.0. That was the shift, RIGHT THERE. That spread is now -19.0.
So what’s the point of this little exercise? I don’t much care what the famous analysts are saying about hawkish or dovish cuts. The market is saying that forward cuts are being priced out, not completely, but to a large extent. Money has committed to the idea. Might be right, might be wrong, but I’ll take the market clues over sideline prognosticators and forecast that 1) there are renewed concerns about inflation perking up and 2) there could be some sugar growth. Is silver also telling us that?
