Lower yields with or without the Fed
February 16, 2026
*******************
President’s Day Holiday. Banks and treasury market are closed.
–Slightly soft CPI (+0.2 m/m, +2.4 y/y) capped a week of falling yields. On the week 10s sank 15.8 bps to 4.058% and 30s fell 15.1 to 4.702%. 10y yield dropped 4.4 Friday. The ten-year inflation breakeven has ranged between 224 and 238 since October, and ended the week at 229.6, closer to the lower end of the range. By this measure, inflation expectations appear to be well anchored and edging down.
–Option plays Friday favored upside: Buyer of 30k SFRU6 9800c for 4 and then 40k more U6 9800/9900cs for 3.0. Late in the day featured a reach for treasury calls: +40k TYJ6 112/114 risk reversal covered 112-315, 56d, paid 6 for the call. Settles: TYM6 113-025, 114c 0’24s (open int +49k) and 112p 0’15s (OI +22k). So the rr settled 9 vs 113-025. April treasury options expire 27-March, with the FOMC a week and a half earlier on March 18.
–Huge seller Friday of 50k SFRU6/Z6 3m calendar at -11.5. Spread settled -12.5 (9683.5, +4.5/9696.0, +6.5). That’s a new low, and indeed many near SOFR calendars sank to recent lows. SFRH6/H7 plunged 7 bps to -62.5 (9637, +0.5/9699.5, +7.5). SFRH7 is the peak contract on the SOFR strip and is again flirting with a 97 handle. SFRM6/M7 fell 5.5 to -40 (9659, +3.5/9699, +8.0).
–I’ll be away from the desk at the end of this week, so Wednesday morning will be the last note.
