Maybe 1-day TREASURY options can be fun too!
October 24, 2025
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–Large trade yesterday was a buy of over 100k TYX5 113.0p (expiring today) for 2 and 3. Traded when TYZ5 was around 113-155. This strike traded 290k with open interest +118k. As of this writing TYZ5 is 113-12, but CPI is released this morning. My understanding is that the data is needed for COLA calculations. A nice big raise in public checks makes everyone happy. In any case, m/m CPI expected 0.4 with Core 0.3. YoY expected 3.1 from 2.9 with Core 3.1 from 3.1. The 2% target has been buried with the Epstein files.
–A bigger story is that (for now) the Trump/Xi meeting is scheduled for Thursday. Could that be negative for treasuries? This might be one of the more interesting treasury option expirations in some time. Remember, it’s not gambling if you have the information tilting the odds in your favor.
–Rates were up across the board, with 2s thru 30s up 3.5 to 4.5 bps in yield. Ten-yr ended 3.989%. On the SOFR strip, prices were weaker, with every contract from SFRM6 to SFRM9 down 5.5 to 6 bps. Peak contract SFRH7 settled 9704, down 5.5. However, there continues to be accumulation of upside: SFRU6 9750/9800cs 7.5 to 7.25 paid for 20k (settled 7.0). SFRH7 9750/9800cs also bought for 10.75, 18k, settled 10.25. They’re buying SOFR call spreads and buying TY puts. Why is 2/10 only 50 bps? I ask rhetorically, because there are plenty of trades both ways and a geopolitical/economic backdrop that allows for wildly different scenarios. I just think 2/10 is on the cheap side.
–On a previous note I highlighted the spread between FFX5 and SERX5 (1 month contracts) as an indicator for reserve tightness. Spread had been trading around -5 but was as low as -10/-9.5 yesterday morning. Then JPM and Goldman suggested that the Fed is going to end QT next week. A block of 43k traded -9.0 which appears to be an exit. Settled -9.0 (9605.0/9614.0). With EFFR 4.11, FFX5 at 9614 or 3.86 exactly reflects a 25 bp ease next week. But one -month SOFR is 3.95. In a way, I would think this type of pricing should put marginal pressure on SFRZ5, even with QT ending. (SFRZ5/H6 settled -24.5).
