Hassett priced?
November 26, 2025
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–Markets perked up a bit when a newsflash indicated that Kevin Hassett was a front-runner for the Fed Chairmanship. New low in SFRH6/H7 one-year calendar at -57.5 (9646.5, +0.5 and 9704.0, +4.0). SFRH6/U6 six-month spread captures the end of Powell’s term settled -45 (9646.5/9691.5) down 2.5. However, 2/10 spread barely moved at 53.9. 2y yield fell 2.6 bps with 10s -3.6 to exactly 4.00%. Jan Fed Funds settled at a new recent high 9634.5, with a price of 9637 representing certainty of a 25 bps cut at the Dec 10 FOMC.
–So, FFF6 is expressing near certainty of a 25 bp cut at the Dec 10 FOMC in front of today’s Beige Book. However, the spread between SFRZ5 (which already reflects the Dec ease) and SFRH7, the peak contract on the SOFR strip is only -77.5, indicating 3 more eases. (SFRZ5 9626.5, +1.0 and SFRH7 9704.0, +4.0). Concerns related to a new surge in inflation are plausible, but the 30y yield FELL 2 bps yesterday to 4.657% and the 10y breakeven, (10y treasury vs TIP, a long term inflation proxy) fell to a new recent low of 224 bps. Perhaps the possibility of a peace agreement with Russia is a counterweight to inflationary impulses.
–Premium in treasuries continues to sink, partially due to stripping out time value for the holiday. TYF6 atm 113.5^ settled 1’14, down from 1’21 Monday. Some notable selling in 5y: FVF 110^ sold at 0’52 (4k, settled 0’51) and FVH 110^ at 1’27, settled 1’26. FVF 110.75/111 call strip sold at 15, 12k, settled 15. 110.75 strike approx 18 bps otm. 5y close yield at 3.567%.
–Range in 10y B/E has been 247 bps to 217 (right after Liberation Day in April). The new buzzword in articles about the economy is “affordability”. There seems little chance of bringing inflation back down to 2%. Assume Fed cuts to 2.75-3.00 by summer and inflation is 2.25 to 2.50%. Real rate of 50 bps; probably mildly stimulative (for financial assets anyway) but it’s already being priced to a large extent. That’s IF inflation comes down.
–There was a seller of SFRZ5 9625p at 3.0 vs 9625.75, or 6.75 equivalent in the straddle, which settled 7.0. Seems cheap but probably appropriate.
–Buyer 15k SFRU6 99.00/100.00 cs for 1.5 covered 9689.5 with 5 delta. Settled 1.0 vs 9691.5. Ever since SVB there’s an upside bid.
–Jobless Claims expected 225k from 220k Consumer Confidence and Expectations are horrible. Why? AFFORDABILITY.
