Friday steepener
December 15, 2025
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–Friday featured a new high in 2/10 for this calendar year just above 66 bps with 2y unch’d at 3.526 and 10y + 5 bps in yield to 4.192%. 5/30 made a new recent high at 111 (hi of the year is 123.6). Long-end contracts trade weak, but the re-introduction of Warsh as potential Fed Chair may have temporarily alleviated the worst fears of reckless Fed cuts.
–The SOFR strip also steepened. SFRH6 +1.0 to 9646.5, H7 -1.5 to 9683.5, H8 -3.5 to 9666, and H9 -4.5 to 9646.0. The peak contract on the strip is now SFRZ6 as forward contracts have sold off. SFRZ6 is now 9684.5. On settlement basis, it’s been in a tight range for five months, 9669 low in July to 9713.5 high in September just prior to the ease.
–Fed Effective setting on Thursday was 3.64 or a price of 9636.0. FFG6 captures the Jan 28 FOMC and settled 9642.0 or 3.58%, 20-25% chance of ease at that meeting. All FF contracts from Dec’26 thru Sept’27 are clustered at 9689 to 9690.5, consistent with a terminal target of 3.0-3.25.
–ADP and Employment report on Tuesday. NFP for Nov expected 50k with rate 4.5%.
–In 2007 the Fed eased in Sept by 50 from 5.25 to 4.75, then cut 25 at the end of October and at the Dec meeting. SPX made its high on 11-Oct-07, fell through November but had a last gasp bounce on Dec 11, which failed to approach the October high. CPI was 4.1% in Dec 2007. From the Dec’07 high to one year later low, the loss in SPX was just over 50%. Some similarities now, high on Oct 29, bounce to last week’s high on Dec 11, Fed eases. The difference of course: the current stable of sane economic stewards steering the train : – /
–A bit of quick math. $400k 30y mortgage at current 6.3% rate is $2476/mo. 50y mortgage same rate of 6.3% is $2195/mo. Difference is $281/mo or $3372/yr. Which just might be swallowed by local property tax and home insurance increases. If the 50y mortgage rate were 7.2%, the monthly payment would be $2468/mo.1984
