Megathrust
August 1, 2025
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–Front end of the SOFR curve continued to get hit as Trump’s cagey negotiating tactic of hurling personal insults at Powell appears to be backfiring. “You stay classy San Diego.” SFRZ5 settled -5 at 9597.0 and H6 -6 at 9618.0. Last Friday SFRH6 settled 9630, so about half an ease lower. SFRH6 price is now only 50 above the current EFFR of 4.33% (9567). Easing is being stretched further out in time; new low yesterday in SFRH6/SFRH7 calendar yesterday at -59 (9618/9677). Z5/Z6 settled near its low at -75.5. Ten-year yield actually declined on the day by 1.6 bps to 4.36%.
–New buyer yesterday of 75k SFRQ5 9700c for 0.25. Expires 2 weeks from today on SFRU5 underlying which is nearly 1 1/4% out of the money. U5 settled 9576.5. Odd buy, but then again unsettling seismic activity on Russia’s far eastern coast of Kamchatka is ongoing due to the megathrust earthquake. (Obviously Q5 9700c need an ‘outlier’ to play, and there’s more than one candidate lurking in the shadows).
–Stocks lower this morning following AAPL and AMZN (the latter of which was described as “gloomy” by CNBC). News sources are attributing profit taking to tariffs and deadlines. Undoubtedly some blame will be laid at the feet of the Fed for not providing adequate liqudity. However, the Sunday evening surge associated with the EU trade deal was met with sellers, and then Wednesday’s MSFT, META blowout to new highs was also met with selling yesterday. Outside key reversal days in ESU5 and NQU5 yesterday, new record highs, outside range, close lower and near the lows. Price action is whispering caution. (don’t forget the Elvis Costello song – Whisper to a Scream). In fact, with this early morning range in ESU5, it’s an outside WEEK.
–Payrolls today expected 110k from 147k with the rate at 4.2% from 4.1%. Press reports and social media suggest a continuing shift towards ‘jobs are hard to get’.
