Long bond near 5%, trying to hold…
July 16, 2025
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–Long end continues to trade suspiciously weak, with 30s just above 5% at 5.017% (+4.3 bps). Tens rose 6 bps to 4.487%. CPI slightly better than feared, with yoy 2.7% and Core 2.9%. PPI today. Large buyer +41k USU5 108p on blocks. Early, +22.5k for 28.5 covered 112-09, 16d and then later +18.5k for 34.5 covered 112-02, 19d. Settled 36 vs USU5 111-31s. New position, OI +40k. Also new: Late block buyer of TY puts: +10k each TYV5 108.0p for 26 with +10k TYX5 107.5p for 28 covered TYU5 110-10. (Settled 26 and 29 vs TYU5 110-09s)
–Early in the session Bessent said he favors Powell serving out his term until it ends in May. Jamie Dimon warned it’s essential that the central bank remains independent (followed of course, by Trump again blasting out his call for an immediate cut of 300 bps). FFQ5 is back to 9567.5/68.0 (settled 9567.5) so the market sees almost NO chance of an ease at the July 30 FOMC. Beige Book released this afternoon.
–Just for reference, the high yield on the 30y was 5.095% on 21-May. Settles on front treasury futures at that time: USM5 110-25 (yesterday settle 111-31) and WNM5 113-14 (yesterday settle 114-24).
–Note that the ten-yr breakeven (treasury – tip yield) edged to another new recent high of 2.426%. An additional nudge in the direction of higher forward inflation worries. One other thing, probably not even worth a mention but I will do so anyway since I’m focused on this for myself, HYG made a slight new low for July (for now it looks like a minor setback after the fierce rally off the April low). I had read that HYG and JNK holdings actually increased in quality, because the really crappy stuff was going to private credit. NO CONFIRMATION of that, but I thought this comment on X was interesting given Trump’s plan to use executive order to help open 401Ks to private markets. From EndGameMacro:
This is about rerouting a tidal wave of captive capital, trillions locked in 401(k)s into private markets that are increasingly illiquid, overvalued, and in desperate need of fresh inflows. Behind the populist framing lies a deeper truth: public markets are saturated.
Who are you going to believe? Blackrock or EndGame Macro?
–One last mention is in SOFR. Every contract from SFRZ5 through golds was -6 to -7.5 on the day. There was a lot of trade in SFRU5 puts, contract settled 9582.0. But the trade I am mentioning was flagged by BBG’s Edward Bolingbroke: a sale of 25k SFRM7/U7/Z7 butterfly at -0.5. New position. Settles: M7 9667. U7 9661.5 and Z7 9655.5. So M7/U7 settled +5.5 and U7/Z7 +6.0, fly settled -0.5. Back spreads typically aren’t that volatile, but in general have firmed a bit. Interesting to compare this fly to a year forward: SFRM6/U6 settled 9652.5/9665.5 so -13.0 while U6/Z6 settled 9665.5/9671 or -5.5. -13 – (-5.5) is -7.5, but I doubt the curve will act in a well-behaved roll. My initial thought was, “OF COURSE they’re selling, because Dec 31 2027 is on a Friday, so the turn covers a long weekend.” In the old eurodollar contracts, December always traded at a slight yield premium due to end-of-year funding pressures. In any case, blue horseshoe says avoid being long SFRZ7.
