Fries with that?
July 2, 2025
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–Market rotation yesterday with selling pressure on front end of curve. Weakest contracts SFRM6, U6 and Z6, all down 7 to 9675, 9686.5 and 9690, with Z6 still the peak of the SOFR strip. While front end was weak, USU5 was almost unch’d after a soft start, settling 115-12, just -3. Cash 30y yield unch’d at 4.78%. TUU5, FVU5, SFRZ6 all had outside days and closed lower, suggesting hedging pressure, and concerns in front of tomorrow’s NFP, which is expected 110k from 139k last. Quarter-end SOFR rate was high at 4.45%, also a factor. Rotation in stocks as well with Nasdaq Comp -0.8%, SPX -0.1, but Russell 2k +1.0% as the Senate passed BBB. NQU5 was down over 200 late in the day. I would expect to see some high gamma put buys today in FV in front of NFP.
–JOLTS much stronger than expected 7300, coming out 7769. As friend JD notes, around 300k of the increase was in Accommodation and Food Services. From Wayne’s World: “I’ve had a lot of Joe jobs. Nothing I would call a ‘career’. Let me put it this way: I have an extensive collection of name tags and hairnets.”
–An X post arbitrarily said NFP would have to be under 50k for the Fed to consider an ease in July. The average NFP over the past year is 144k. NFP for October 2024 was originally released at just +12k but later revised to +44k. On the original release date, November 1, TY contract settled 110-01 and SFRZ5 was around one-year forward, settling 9630. Both settles were actually lower on the day. Yesterday, TYU5 settled 111-275 and one-yr forward SFR contracts are M6 at 9675 and U6 at 9686.5. August FF yesterday settled unch’d at 9572, still indicating about 20% odds of a July 31 cut. While a sub-50k number may increase rate cut odds, I would suspect the political environment and gov’t stimulus make the hurdle much higher.
–Several large trades are pegging SFRU5: Buyer of 45k SFRU5 9587.5/9593.75/9600/9612.5 broken call condor for 0 (and 5k for 0.25). This trade looks for just one cut at the Sept meeting; max value 6.25 on a settle between 9593.75 and 9600. More aggressive was a buy of 15k SFRU5 9600/9625/9650c fly for 4.0. SFRU5 settled yesterday 9598 or 4.02%, 31 bps under the current EFFR of 4.33%.
