Miran neutralized
October 30, 2025
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–Fed cut 25 as expected, but Powell made it a point to note that the outcome of the DECEMBER FOMC is far from a foregone conclusion in terms of a further ease. Markets immediately took the cue and front end was whacked. FFF6, for example, plunged from 9639 to 9631 (settle 31.5). QT to end in December. Markets had been fully anticipating another 25 bp cut in Dec, or possibly more. EFFR yesterday was 4.12 or 9588, so a cut of 25 plus 25 in Dec would be 9638. With a settle of 9631.5 (-7.5) in FFF6, odds of a Dec cut were shaved to around 70%. Obviously, selling was concentrated in near contracts. SFRZ5 fell 9 bps to 9627. SFRH6 was weakest, -11.5 to 9646. One-month SOFR to FF spreads remain pegged at lows: SERX5/FFX5 -10.5 (9601/9611.5) SERZ5/FFZ5 -11.0 (9613/9624). These spreads indicate a continued tight reserve situation which could easily worsen before December.
SFRH6 9646.0 -11.5 (and 2y note jumped ~9 bps to 3.58%)
SFRH7 9693.0 -7.5 (this is still peak contract on SOFR strip, but now more consistent with 3% terminal rate)
SFRH8 9678.5 -7.0
SFRH9 9661.0 -6.5
–In treasuries, new low in 2/10 to 43 bps (2s 3.58, +8.8 bps & 10s 4.053, +7.4 bps). New recent low as well in 5/30 to 90 (3.696/4.597).
–Other notes from Powell: FF now 3.75/4.0% and most current estimates of neutral rate are between 3 and 4%. “Policy is still modestly restrictive”. Inflation apart from tariffs is pretty close to 2%. Miran dissented for a cut of 50. Schmid dissented for no cut. A wash. (Guess who gets replaced in the February Fed President re-appointments?)
–SFRZ5 settled -9.0 at 9627.0. On Tuesday, with a settle of 9637.0 the 9637.5 straddle settled 9.5. By yesterday’s close it was 10.5 in the money and the 9625^ settled 13.0. The huge long in SFRZ5 9650/9662.5cs (originally bought from 1.5 down to 0.75) is currently under water as spread settled 0.5. Still nearly 950k open in 9650c, settled 0.75, down 1 on the day.
–Quite a bit of post-mkt activity in equities with META and MSFT getting hit on earnings reports, and GOOGL soaring. AAPL and AMZN today. NVDA around $5t mkt cap. Russell 2000 in TOTAL is $3.4T.
–Trump and Xi Agree One Year Trade Truce (BBG). Not sure what the ultimate outcome will be, but when markets don’t react positively to positive news (and I would have to put this in that category), it’s bearish. We’ll have to see how it shakes out…
–In the meantime, some news that’s far removed from SOFR and Treasuries.
First, a furloughed IRS lawyer wears his suit and tie to a new gig: selling hotdogs from a streetcart: Shysters Dogs!
https://www.npr.org/2025/10/29/nx-s1-5589165/furloughed-federal-employee-hot-dog-stand
And then there’s this. (The bottom vector of the K in the so-called K shaped economy is moving higher up on the vertical axis).
I love this auto-repo company slogan: “Don’t make it / We take it”
A great quote in the article: “…the volume, it’s so big. You’re in a target-rich environment.”
TARGET RICH. Brimming with optimism!
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