It’s getting illiquid in here. Almost TOO illiquid
November 14, 2025
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–Reserves: from abundant to ample in years. From ample to scarce in about two weeks. The market trades as if liquidity is becoming questionable. FFF6 (Jan Fed Funds) settled -3.0 at 9626, now reflecting around 50/50 in terms of a rate cut in December. [current EFFR is 3.87. A cut in Dec means 3.62 or 9638. Current price about halfway between 9613 and 9638] SERX5 settled 9601 vs FFX5 9612.5, a spread of -11.5. This spread is essentially unch’d, but daily SOFR settings have been edging higher, 3.98 on Wednesday from 3.93 last week. SFRZ5 settled 9619.5, down 3.5 on the day. Yesterday there was a buyer of 10k Nov 9618.75p for 1.0, which expire today. Of course, to gauge liquidity in the system, rather than focusing on the minutiae of rate futures, it’s easier to just glance at ESZ5 and NQZ5, both down 1.7%.
–Tens ended 4.108%, up 3 bps and thirties 4.701% up 4 bps. 2/10 spread up 2.2 at 52.3, range so far in Nov is just 50.1 to 53.7. There’s not much in the way of ‘flight-to-quality’ in treasuries, though there was a new late buyer of 14k 0QH6 9725/9800cs for 7.5 (7.0s vs SFRH7 9689.5). As I mentioned yesterday in an X post, the ftq bid is in Berkshire which holds $380b of t-bills. In a down market, BRK/B was UP 2.1%.
–SFRH6/M6 spread edged to a recent new low -24 (9641/9665). This is the lowest level since the Sept 17 FOMC. Actual low settle in the spread was 8/28 at -27.5. This spread is interesting as it captures Powell’s end of Chair term, and some expect immediate large eases at that time. Prior to that, the 12 regional Fed Presidents are up for re-appointment in February. Bostic has already said he’s retiring. Collins, Hammack, Logan, Kashkari, Schmid, Musalem have all expressed inflation concerns, which is being reflected in the 50/50 FFF6 pricing. If you’re going to get booted in Feb anyway, why give the gift of an ease? (Collins, Musalem and Schmid are voters).
–WSJ reports yesterday that Verizon is cutting 15k jobs. One other trade of note: New buyer 13k SFRZ6 99/100/101 call fly 1.5 to 1.75. Anyone looking for ZERO on the dot plot for end of next year?
current regional presidents.
St. Louis: Alberto G. Musalem
Atlanta: Raphael Bostic
Boston: Susan M. Collins
Chicago: Austan D. Goolsbee
Cleveland: Beth M. Hammack
Dallas: Lorie K. Logan
Kansas City: Jeffrey R. Schmid
Minneapolis: Neel Kashkari
New York: John C. Williams
Philadelphia: Anna Paulson
Richmond: Tom Barkin
San Francisco: Mary C. Daly
