Imagine
Sept 4, 2025
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–Trading without much imagination in rates….just sort of pegging Sept and putting in a 25 bp ease every quarter. For example, SFRU5/U6 one-yr calendar settled -100.5 (9592.5/9693.0). SFRZ5/H6 settled -25.0 (9624.5/9649.5). SFRH6/M6 settled -26.5 (9649.5/9676.0). Many prices are in neat 25 bps increments. Z5/Z6 is almost -75 (-76.5) and H6/H7 is almost -50 (-54.5) and M6/M7 is almost -25 (-27.0). As if we don’t really know where this can go, but easing cycles typically favor the near term once they start, so we’ll just price it this way.
Consider these settlements
SFRU5 9592.5 (4.075%, essentially matching what will be the new EFFR after the Fed cuts 25)
SFRZ5 9624.5 (3.755%)
SFRH6 9649.5 (3.505%)
SFRM6 9676.0 (3.240%)
SFRU6 9693.0 (3.070%)
–I’ve previously mentioned the ten-yr yield seems pegged to Fed Effective of 4.33%, but now that an ease is pretty much in the bag, 10’s at 4.211% are in between what will be the new Fed effective of 4.08 and the current one of 4.33.
–A standout trade from yesterday was early buying of TUV calls, which expire 26-Sept. All new positions. TUZ5 settled 104-09. 2y yield cash 3.61, down 4.8 bps on the day
TUV5 104.50c 6.5/16k (7.5s)
TUV5 104.625c 4.5 to 5 for 16k (5.5s)
TUV5 104.75c 3.5 for 16k and 4.0 for 27k (4.0s)
I roughly calculated 104.625c strike (104-20) to be a yield of around 3.42 to 3.41 or around 20 bps lower. Previously we’ve seen (larger size) accumulation of OCT calls on TY…the 113, 113.5 and 114 strikes. TYZ5 settled 112-195 yesterday, with 10y yield 4.211%
–Maybe these buys are more than about payrolls. SFRU5 settled 9592.5. If NFP tomorrow is horrendous (negative) then I would anticipate a brief test of the 9612.5 strike.
–Today’s news includes ADP expected 68k from 104k. Jobless Claims 230 from 229 last while continuing claims march ever high…1954k last and now 1959k expected. ISM Services 51.0 from 50.1 with the employment component 46.7 from 46.4
