Liquidity mismatch
March 8, 2026 – Weekly comment
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Summary of week’s ‘highlights’:
US/Israel attacks on Iran continue, now targeting energy infrastructure
Iran closes Strait of Hormuz; April WTI rises 23.88 to 90.90 (around the level from early 2022 just before the Fed started hiking, Front WTI traded over 120 in 2022)
NFP much weaker than expected at -92k. (3 month avg +17k)
KOSPI crashed. After surging 57% from mid-Dec to end of Feb, KOSPI sank 19% in a couple of sessions, though regained some losses into end of the week. From 12/18 to 3/6 the gain is still a blistering 40%.
On the week SPX -2.0% and Nasdaq 100 -1.3%.
Oracle and OpenAI end plans to expand Texas data center
BlackRock gated a private credit fund, HPS Corp Lending. Here are a couple of lines from a BBG story:
BlackRock said the step is in line with its existing management of liquidity…
“Without it, there would be a structural mismatch between investor capital and the expected duration of the private credit loans in which HLEND invests.”
A year ago Larry Fink recommended private credit and equity for 401ks. The ‘structural mismatch’ is embedded. We ignore it… until there’s a downturn.
From another BBG article:
“The question some investors may be asking is, ‘Did BlackRock overpay for HPS based on current industry dynamics?’” Larry Herman, a managing director at Raymond James Financial Inc., said in a phone interview. [Let me field this one Larry. YES]
Signs are piling up regarding liquidity deterioration.
BLK closed at a new low for the year, down over 10% on the week. Jeffries (JEF) which appears to have some vocal skeptics on X, down 13.8% on the week. Even HYG is starting to break down, with current price action echoing the initial phase of the Liberation Day plunge from 78.89 on 3/31 to 75.75 on 4/8. Current price 79.69.
Grains had a nice pop as concerns about fertilizer supplies intensified. May Wheat +4.3% on the week. May Beans +2.6%
March equity option expiry is the largest ever: according to Google 35% of all US options exposure is set to roll off. March 20, this Friday.
Prices
5y note weakest on treasury side, up 20 bps to 3.71% (10’s +16.7 to 4.127% and 30’s +11.9 to 4.752%). The week before last, treasuries seemed to be functioning as a risk-off/safe haven asset, Complete opposite last week, with inflation and gov’t budget concerns dominating. MOVE surged from 63.93 on Thursday, Feb 26 to 81.26 on Friday.
I would anticipate strong demand for this week’s 3/10/30 auctions as yield levels are attractive and USD is seeing inflows.
Notable price change: Peak SOFR contract fell in price/rose in yield 24 bps, SFRU7 settled 9682 (3.18%), after hitting a high of 9711.5 last Sunday night. Fed Effective rate is 3.64%, so SFRU7 is just less than 50 bps lower in yield.
SOFR curve flattened, with red/gold pack spread (2nd year vs 5th year) falling 9 bps from 50.375 on 27-Feb to 41.25 (Friday to Friday). Lowest since last April. On Friday the red pack settled just above 9680 (or 3.2%) while the gold pack settled just under 9639 (3.61%). In my opinion the market is not trading as if a new sustained round of inflation is coming. However, the ten-year breakeven (treasury – tip) did pop up to a new recent high of 235 bps. Range since last May is 225 to 246, so right around the midpoint.
Here’s an amusing snippet from JJ (Market Vibes on substack):
On Thursday, February 26, a single ounce of gold fetched 81 barrels of crude oil or roughly speaking 3402 gallons of refined crude oil fluids or… the equivilent of roughly 68,000 vehicle miles at 20 MPG. However, I asked Grok for a more accurate calculation and Grok returned this: “25 MPG is the standard blended fleet average accounting for the average mix of SUVs and hybrids. In round numbers: A single ounce of gold buys roughly 85,000 vehicle miles or 7–8 years of average driving for the typical U.S. vehicle (at 25 MPG and 11,000 vehicle miles per year).
Imagine buying a new car, inserting a single ounce of gold into the fuel tank and driving it for 7 or 8 years, never having to pay another penny or stop at a staion to fill up.
Not sure data means much this week, but CPI on Wednesday expected 2.4% yoy (from 2.4 last) and Core 2.5% from 2.5%. PCE prices Friday expected yoy 2.9 from 2.9 with Core 3.1 from 3.0.
This risk-off episode has some echoes of Liberation Day. However, the background has changed. Cracks in the private credit market have already been showing up. There have already been rate cuts in aggregate of 75 bps. The AI revolution is accelerating, and with it, job security angst. Obviously the geopolitical landscape has changed. Vulnerabilities are higher.
After trading as high as 104-24 Sunday night, TUM6 settled 104-077 on Friday. 2y cash yield 3.548, which is now back above the low end of the FF target range 3.5-3.75%. There has been some notable buying of TU calls for protection. Significant skew: (TUJ6 104p settle 3.5 and 104.5c settle 5.5, 3 weeks until expiry). I like buying TUJ6 104.5/105.0cs for 3.5/32 (settlement price).
| 2/27/2026 | 3/6/2026 | chg | ||
| UST 2Y | 337.5 | 354.8 | 17.3 | |
| UST 5Y | 351.0 | 371.0 | 20.0 | |
| UST 10Y | 396.0 | 412.7 | 16.7 | |
| UST 30Y | 463.3 | 475.2 | 11.9 | |
| GERM 2Y | 199.5 | 230.7 | 31.2 | |
| GERM 10Y | 264.2 | 285.8 | 21.6 | |
| JPN 20Y | 292.3 | 299.4 | 7.1 | |
| CHINA 10Y | 180.8 | 179.8 | -1.0 | |
| SOFR H6/H7 | -66.8 | -42.8 | 24.0 | |
| SOFR H7/H8 | 2.5 | -3.0 | -5.5 | |
| SOFR H8/H9 | 19.0 | 16.5 | -2.5 | |
| EUR | 118.12 | 116.18 | -1.94 | |
| CRUDE (CLJ6) | 67.02 | 90.90 | 23.88 | |
| SPX | 6878.88 | 6740.02 | -138.86 | -2.0% |
| VIX | 19.86 | 29.49 | 9.63 | |
| MOVE | 73.38 | 81.26 | 7.88 | |
