Going Back
January 2, 2026
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–Wednesday featured a new high in 2/10 treasury spread at 68 bps (3.463/4.143). The low for the year was posted in February at just over 18 bps. Wed’s high hadn’t been seen since early 2022, just prior to the onset of the (flattening) hiking cycle. Since early April the spread traded a relatively tight sideways range from about 45 to 62, so we appear to be in an upside breakout. The high in 2021 was 158, but that, of course, coincided with zero FFs.
–And we’re NOT going back to ZIRP, right? Well, just in case, there has been a buyer of 9900 calls on both SFRU6 and SFRZ6, mostly done via spreads like 99/100 call spreads and 99/100/101 c flies. As an indication, here are open interest and settles: SFRU6 9684.5, 99c 1.75s, OI 87k. 100c 0.25s, OI 89k. SFRZ6 9689.0s (peak on SOFR strip). 99c 2.25s, 87k. 100c 0.5s, 79k. 101c 0.25s, 40k. On Friday, there was a new buyer of SFRZ6 99c for 2.25 and just under (OI +31k, included in above). In some ways, owning SFRU6 100c for 0.25 makes some sense, but I am sure they’re bid.
–Switching to the opposite end of the yield curve, USH6 settled 115-19 at Wednesday’s early holiday mark. During the remaining electronic session the contract traded as low as 115-04 (this morning it’s 115-11, having printed an early morning low of 114-28). USH6 low in December was 114-17. Maybe the extreme 2026 trade is long SFRU6 100c and long USM6 100p, settled 7 ref 115-05. If both sides go itm, it’s Miller High Life for everyone! Or…the end of the world. Maybe both.
–From Alyosha (Market Vibes) “Oil prices, adjusted for inflation, are ending the year [2025] lower than they were before the OPEC embargo in October 1973.”
–By the way, KAOS might have been the first to trade 100 calls…back in 2008. He kept the card:
‘Where we’re going we don’t need roads.”
