Just loosen the standards
February 25, 2026
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–Doesn’t appear to be much reaction to State of the Union speech. Stocks have edged higher and bonds lower.
–Part of the bond move could be related to weakness in Japanese bonds as Takaichi nominated two new BOJ board members who are seen as dovish. Though JGB yields are well off highs set in January, the 30y gained about 8 bps to 3.286%. $/yen popped to a new recent high of 156.75. High in Jan was 159.45.
–Another interesting item is that Anthropic “has loosened its central safety policy…saying it will no longer delay AI development if it believes it lacks a significant lead over a competitor (BBG)” Probably an ominous development. Can we put some cheaper and lighter brakes on this car? It’ll go faster.
–Peak SOFR contract slipped back one slot to SFRU7, which settled 9697. Easing expectations remain somewhat muted, with nearer contracts being pulled down in price toward the current policy rate. This dynamic has caused near SOFR calendars to implode. SFRH6/H7 settled -59.5 (9634/9693.5), M6/M7 -46.5 (9650/9696.5) and U6/U7 -24.5 which is a new low (9672.5/9697). Red SOFR contracts continue to reject levels over 9700. One question is whether near calendars are cheap enough now to consider buying, and in some ways, it’s the same thing as asking if reds should be sold. Consider SFRM6/M7 at -46.5. Six months ago, on August 25, that same slot spread was -73.0 (relative prices 9620/9693). However, there were three 25 bp eases since then; the reds are still around the same place but the front contracts had to adjust to the new reality of lower FFs. I’m not sensing a particular edge in the calendars at this moment, I’d rather just own some cheap deferred calls or call spreads figuring that the next blow-up will send reds over 9725.
–5yr auction today. Tens were nearly unch’d with a yield of 4.029% and TYM6 settling 113-075, -3/32. Treasury rolls were very active yesterday. Currently 5y roll is 79.7% complete, 10y is 81% and Ultra bond is 79%.
–NVDA reports today.
