Inflation signal from ISM?
May 1, 2026
*************
–May Day. I like Commandment in the Derby.
–News today includes ISM Mfg expected 53.2 from 52.7. Prices Paid was a new high 78.3 last and is expected 80.0, which would be the highest since the aftermath of the COVID cash giveaway in 2022, High for June 2021 was 92.1. 10y breakeven edged to new high 247.7 bps yesterday.
–Curve bounced slightly with reds +5.25 to 9636, greens +4.125 to 9639.5 and blues +2.75 to 9628.125. Every SOFR contract is clustered around the current EFFR of 3.64 and SOFRRATE which has been 3.63 to 3.66. In treasuries, 2y yield fell 4.9 bps to 3.881 and 10s fell 2 to 4.388%.
–Numbers in market cap are getting overwhelming. According to BBG GOOGL added $421b in market cap yesterday, up $860b on the year to total $4.65T. Russell 2000 has market cap $3.83T. BOJ supposedly spent $35b intervening yesterday.
–Interesting trade noted by Art Main:
+25k 0QU6/3QU6 96.00 put spread covered 96.33 delta .30 and 96.295 delta .30 from 3.25 to 3.75 (bear flattener +0QU6 -3QU6)
0QU put 14.5s, 3QU put 10.5s
So bought puts on SFRU7 vs sold on SFRU9…these are midcurves, both expire on the same day, 11-Sept 2026.
I would note that the calendar spread SFRU7/U9 settled +3.5 which is near the low for the flattening move. In mid Feb the spread was +40. (2/13 prices 9696 and 9654.5). On hedged basis a sharp rebound in the curve would benefit this trade. If unhedged it seems like the location isn’t that great, however, I would note in late 2022 as the Fed was hiking, the second red to second blue spread traded below -100 bps
The atm straddles:
0QU6 9637.5^ 52.5 vs 9633.5
3QU6 9625.0^ 42.0 vs 9630.0
On a relative nominal basis red straddles are most expensive as sentiment has shifted toward hikes.
