Long Shots
May 3, 2026 – Weekly comment
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…the last shall be first.
Amazing Kentucky Derby run by 23 to 1 long shot Golden Tempo and jockey Jose Ortiz. From dead last, at least 18 lengths behind the leader at the half-mile mark, Golden Tempo turned on the burners but still had to fight through the pack. Finally Ortiz pulled him to the outside after the turn, losing a step but gaining an open straightaway. All heart from there in a blazing sprint.
And complete class by Jose Ortiz in his immediate victory comments.
https://www.youtube.com/watch?v=IsFsnLjQXCc
The fastest Derby ever was Secretariat at 1:59.40. This race time was 2:02.27 but Saturday had to be close to the fastest last ¾ mile ever.
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US inflation data seems to be accelerating as well. For example, prices paid in the ISM Mfg survey were the highest since 2022 at 84.6. Jobless Claims of just 189k just edged out the low from 2022. Capital Goods Orders nonDefense exAir at +3.3% was the strongest since 2020.
The market is clearly more focused on the inflation risk than growth worries. On the week the US 2y was up 10.7 to 3.886%, 5s rose 9.7 bps to 4.02% and 10s added 7 bps to 4.377%. More dramatic was action on the SOFR strip. SFRM7 was the weakest contract, tumbling 18.5 bps on the week from 9645 to 9626.5. At the end of the previous week, 9645 still indicated a lean towards ease, as the rate of 3.55% was below the Fed Effective of 3.64%. However, by Friday, the move toward a hiking bias became clear.
There are many analysts forecasting much higher spot oil prices as the strait remains closed and reserves run low. On the next page I plot the ten year treasury minus ten year inflation-indexed note in the top panel (breakeven) and the SFRM6 – 2*SFRM7 + SFRM8 butterfly in lower panel. These two have tracked quite well since mid-Janaury, and visually display concerns regarding inflation. As mentioned during the week the breakeven has had a soft cap at 250 bps since 2023, and is now testing that level again. (high in 2022 was 303.6). The constant maturity butterfly (1st, 5th, 9th contracts) is currently SFRM6/M7/M8 at +24.0. On Feb 27 this fly was -69. SFRM7 has led the move lower, selling off by 79.5 bps from 9706 to 9626.5 over the timeframe from Fed 27 to now. Again, the sentiment completely shifted to concerns about inflation and renewed growth with the need for possible hikes. Three FOMC dissents favoring less of a bias toward ease established the lagging imprimatur of the Fed.
It’s worth noting that in 2022, the constant maturity butterfly (1st, 5th, 9th) rallied from 0 in late 2021 to a high of 200 by early April. Of course this was as red SOFR contracts neared 9500 or 5% by late 2022.
The exploding tech wealth effect further supports consumption. This week the focus may turn towards labor with JOLTS Tuesday and the Payroll Situation on Friday. JOLTS expected 6850 which would equal the low from the end of last year, which was the lowest since 2020. NFP expected +62k from +178k last.
April 3 was the last payroll data, with NFP +178k. TYM6 settled 110-24 vs 110-205 Friday. USM settled 113-18 vs 113-03 on Friday. Term premium, as defined by 10/30 treasury spread, has been well contained. Current 10/30 is 59. Since last August the range has been 55 to 70.
OTHER THOUGHTS / TRADES
There’s been a recent buyer of high gamma TY puts. On Friday he paid 7 for 50k TY Wed Wk1 (May 6) 110.25p, and added another 27k for 5. Settled 7 vs 110-20+. This expiry captures JOLTS and ADP but not NFP. By comparison FRIDAY 110.25p settled 11.
Also on Friday: buyer 50k TYM 112c cov 110-28, 15d, paid 8.
TYM6 111.75c covered 110-23, 17d, paid 9 for 50k. TYM6 option expiry is 22-May.
| 4/24/2026 | 5/1/2026 | chg | ||
| UST 2Y | 377.9 | 388.6 | 10.7 | |
| UST 5Y | 392.3 | 402.0 | 9.7 | |
| UST 10Y | 430.7 | 437.7 | 7.0 | |
| UST 30Y | 495.3 | 496.5 | 1.2 | |
| GERM 2Y | 254.1 | 264.0 | 9.9 | THUR LEVEL |
| GERM 10Y | 299.2 | 303.5 | 4.3 | MAY DAY HOL |
| JPN 20Y | 328.4 | 337.4 | 9.0 | |
| CHINA 10Y | 175.2 | 174.8 | -0.4 | |
| SOFR M6/M7 | -11.0 | 8.0 | 19.0 | |
| SOFR M7/M8 | -10.0 | -16.0 | -6.0 | |
| SOFR M8/M9 | 13.5 | 9.5 | -4.0 | |
| EUR | 117.22 | 117.21 | -0.01 | |
| CRUDE (CLM6) | 94.40 | 101.94 | 7.54 | |
| SPX | 7165.08 | 7230.12 | 65.04 | 0.9% |
| VIX | 18.71 | 16.99 | -1.72 | |
| MOVE | 66.97 | 70.41 | 3.44 | |
