Hedge against a Fed shift to HIKE?
June 4, 2025
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–Yields up slightly in the front end as JOLTS higher than expected at 7391k. Contributing to a risk-off environment, the asset cap on Wells Fargo was removed, allowing that bank to grow again (regulatory relief across the economy). Also ZH notes that yesterday’s treasury buyback at $10 billion was the largest on record, with $2b coming today in the 10-20 year sector.
–2y yields +1.6 at 3.955%, 10s unch’d at 4.458% and 30s down 1 bp to 4.983%
–SFRM6 and U6 were weakest on SOFR strip at -3.5 (9653 and 9663.5). Further out the strip, losses were smaller; golds were unch’d (5th year out). Option activity was concentrated in SFRZ5 (settled -1.5 at 9615.5). New buyer 60k SFRZ5 9562.5/9537.5ps for 1.125 to 1.375, settled 1.5. Previously, there had been heavy accumulation of Z5 9568.75p for 4 to 5, yesterday settled 3.75 with just over 340k open. Also yesterday, a seller of 24k SFRZ5 9650/9625/9600p tree down to 2 (settled 2.0). Net delta of -0.27 on the tree (equiv of about 6.5k futures sold). SFRM5 options expire a week from Friday and M5 settled 9568.75. Dec puts struck below that price require HIKES.
–News today includes ISM Services expected 52.0 from 51.6. The employment component was 49.0 last. The lowest was 46.2 since 2023. ADP expected 112k. Beige Book in the afternoon.
–Interesting X post:
https://x.com/rcwhalen/status/1929895359775449550
“Nearly a quarter of consumers using buy now, pay later loans finance groceries, up from 14 percent a year ago, according to a recent LendingTree survey. And it’s not just groceries; more Americans are using these loans to pay for recurring monthly bills, such as electricity, heat, internet and streaming services like Hulu.”
I would say the REAL growth will come when Klarna and Affirm allow BNPL for 0DTE options. Why not? At least there’s a CHANCE of upside, certainly relative to the spicy burrito that was delivered at midnight.
–Another news item: Meta inked a deal with Constellation for nuclear power to run Meta’s AI data center needs. At one end of the spectrum, the massive potential of AI requires nuclear power plants. At the other, Klarna and Affirm tout AI as an input to manage transactions. So, there are massive investments in nuclear technology which end up supporting something as inherently stupid as BNPL. Absurd.
