I’ll just camp out in the 2 year for a while…
February 6, 2026
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–Rates cratered yesterday with the 2y down 7.5 bps to 3.481% and 10s -6.8 to 4.208%. 2/10 treasury spread squeaked out a new high for the move at 72.7. The rally was sparked by weakness in labor indicators: large jump in Challenger Job Cuts, Jobless Claims up to 231k and, perhaps the biggest catalyst, much lower than expected JOLTS at 6542k vs 7146 last. It’s the lowest JOLTS since 2020, having been cut in half from the 2022 high of 12134. Know what else has been cut in half? Bitcoin. But it occurred in a much shorter timeframe, just 4 months from the high over 126k to a low of 60k this morning. I had mentioned a few days ago that bitcoin’s market cap was $1.5T and today it’s more like $1.3T now. A lot of capital evaporation, but it’s really the web of related products/etf’s that represents a risk. Consider that this week (after yesterday’s earnings report) the market cap of AMZN vaporized by $200 billion or so. (Coincidentally the same amount AMZN is -or maybe WAS – going to invest this year in AI capex).
–Of course equity market weakness was also a large factor in yesterday’s FI rally, with SPX down 1.2%.
–The SOFR strip jumped 8 to 9.5 bps from June’26 to June’29. Peak contract is still SFRZ6 at 9687.5 (+8.5). I had recently said that gold and silver were the new ‘flight-to-quality’ associated with risk-off moves. However, yesterday we went back to the old playbook and just reached for the 2y for safety (and other treasuries as well). Implied vol sparked higher in SOFR, with most straddles up 2 bps or more. As an example, on Wednesday SFRU6 settled 9672 and the 9675^ was 34.0. Yesterday the contract ripped to 9680.5 and the 9675^ settled 37.5.
–Just earlier this morning, a block of 53k traded in SFRH6/M6 spread at a price of -22.0 (9639.5/9661.5). Early yesterday this spread was -16.5, and it settled -20.5 (9641.0/9661.5). I am guessing block was a sale. In any case, the market is tilting toward ease, but SFRH6 is weighed down by the idea of Powell slow-playing, even if stocks are under severe pressure. (So I guess you thought you had the upper hand with a criminal indictment?) Yesterday, SFRG6 9643.75c settled 1.75 ref 9641, (expire one week from today), but probably could have been bought for 1.5. About a week ago, someone sold a decent chunk of FFJ6/FFK6 spread at -4.0. There’s an FOMC on April 29, so that spread isolates odds for that meeting. Yesterday the spread settled -5.5 (9642.5/9648). If stocks do happen to go off the rails, then fears of a near term cut will instantly reset to higher odds. But it’s not happening yet.
–One other aside. There’s a guy on X, Nobody Special (@JG_Nuke) who had an interesting take on the Super Bowl and specifically Anthropic’s ads which are going to run, which brutally mock OpenAI for now accepting advertising. Altman had previously said OpenAI would only accept ads as a last resort. Here we are. Nobody Special says these Anthropic ads, being played on the biggest stage in the US, may mark a psychological shift in the entire AI outlook. Probably a huge stretch…but impossible? This one’s pretty funny:
Curve grinds steeper, 5y swap in futures
February 5, 2026
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–Once again, despite some wild moves in other markets, rate futures ended little changed. SOFR strip +0.5 to +2.0. Peak contract SFRZ6 +1.5 to 9679. In treasuries the bias was steeper. 2y -1.3 bps to 3.557%, 10y +0.5 bp to 4.276, and 30y +1.1 to 4.914%. TYH6 settles: Monday and Tuesday 111-190, Wednesday 111-19+. With 2 weeks to go, TYH 111.5^ is 43/64s.
–Just a couple of notable items in rates: First, a slight new high on the move in 2/10 to 72 bps…only up 1.8 bps, but hasn’t been this high since January 2021, before the hike cycle began. Intervening low in March 2023 was -109.
Second, there was a screen seller of about 20k 5y swap spreads, Adding to 5k (new) sold on Tuesday. This spread trades in decimal form as net change from the previous day. The CME symbol is EWV, which is YIWH26 (5y ERIS SOFR swap) vs FVH6. Most trade done at +0.005 to +0.01. In dollar terms, +0.005 to +0.015 is $10 per contract. DV01 on FVH6 is $42.80. DV01 on YIWH6 is $45.30. So if bid/offer is 0.005/0.015, that’s $10 or slightly more than 2/10’s of a bp. Solid liquidity developing. Late yesterday 5y swap was -27.7. YIWH26 settle 99.705 and FVH6 108-2425.
–Just under a year ago, Kevin Muir (MacroTourist) highlighted this, having to do with trading index vol vs that in individual stocks (maybe a tad early?):
THE DISPERSION TRADE: THE NEXT CRISIS IN THE MAKING?
Feb 20, 2024
On BBG this morning, there’s this headline: ‘Trillion-dollar Tech Wipeout Ensnares All Stocks in AI’s Path’
Certainly there’s been a drubbing in software stocks. Palantir (PLTR) was down 11.6% yesterday and is down around 20% in the past six months. However, I noticed a couple of stocks with much different profiles. For example, yesterday Dow Chemical (DOW) +6.2%, HAL +1.4%, ConAgra (CAG) +3.6%. Might say there are disparate results. Old, boring coming back to the forefront. [I have personal positions in all stocks mentioned]
The WACO kid
February 4, 2026
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–Interest rate futures ended exactly unchanged across the board on Tuesday. Well, not exactly, the SOFR strip was -1.0 to +1.5. TYH6 unch’d at 111-19 with 10y yield 4.271%. 30y yield unch’d at 4.903%.
–Gold vaulted higher, with GCJ6 now 5084, about halfway back from last week’s high print (5627) to Monday’s low (4423). US House passed a funding bill, ending the gov’t shutdown. Not sure if that means payrolls are back on the schedule for Friday, but I think a delay is still likely. A US warship shot down an Iranian drone. Crude oil is currently maintaining a solid bid subject to the vagaries of geopolitics and missiles.
–I had previously read that AI meant the end of software, and apparently the market took that idea to heart yesterday with even MSFT down 2.9%. Over the past six months MSFT is down 23%. Alphabet reports today. Another sector under pressure is private credit/equity: Apollo (APO) -4.8%, Ares -10.1%, Blue Owl Capital -9.8%. The nice thing about private deals is that prices aren’t marked to market, they’re kept private. Like the Epstein files. But there are clues. The story posted yesterday by Crain’s is a case in point. The Chicago Board of Trade address is 141 W Jackson. The building next door is 175 W Jackson (we know it as The Insurance Building, and EVERYONE knows that premium is cheap). Anyway, it sold for just $41 million or $29 sq ft, down from a $306m trade in 2018, an 87% discount. Crain’s calls it “…one of the most staggering losses of value ever for a Chicago office property.”
It’s just possible that I had a beer in that building when the lobby housed the Excelsior. Or later, when the space became Poag Mahone (translation: kiss my arse). And of course from there it was a mere jump to Alcock’s…
–The first FOMC that Warsh is likely to preside over is June 17. I had thought it was premature to read too much into policy changes. However, the nagging thought of large portfolios has to be that the safety net of QE and the Fed’s balance sheet is no longer there. On March 7, 2025, Bessent said on CNBC, “There’s no put”. “The Trump call on the upside is, if we have good policies, then the markets will go up.” Post-Liberation Day in April? Trump put. However, I feel Warsh might be different. No WACO. On the other hand, Powell tried to play tough in Q4 2018 when SPX cratered by 20%. By early 2019 every trade was predicated on easing. Last hike, Dec 2018. First ease, July 2019 to 2.0-2.25%.
Not lower rates
February 3, 2026
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–Yields rose Monday led by the red SOFR pack which ended down 5 at an average price 9671.25. Peak contract still SFRZ6 at 9678 or 3.22%, which is only 42 bps under the current Fed Effective rate of 3.64. For all the talk about Warsh being able to lower rates in the context of a smaller balance sheet and declining inflation, the market seems to be taking a ‘wait and see’ approach. Curve flattened. 2y rose 3.9 bps to 3.563 bps while 10s and 30s were both up around 2.9 bps to 4.269 and 4.903. Bearish factor was the ISM Mfg number, at 52.6 vs 48.5 expected. This data point is the high since mid-2022. New Orders surged to 57.1 from 47.7 last, high since early 2022 before the first hike.
–I’m not consulting AI on this, but it seems to me that a big chunk of GDP growth has been directly attributable to AI capex. On Sunday NVDA’s Huang said his potential $100 billion investment into OpenAI was NOT a commitment, but rather a ‘see how it goes’ program. In my opinion, a big red flag which was ignored by the end of Monday with ESH pushing toward new contract highs.
–In general, price action across markets seems to be somewhat, well, erratic. March NatGas: High on Friday 4.42 with settle 4.35. Monday low 3.155 with settle 3.24. Down 25% on settlements. Who couldn’t have seen that coming?
–A couple of disaster trades worth noting. Buy 36k TUJ6 106.375c for 0.5. TUM6 settled 104-077. A 10 bp change in yield is likely worth about 6.5/32 in the contract (napkin estimate). If TU gets anywhere near the 106 handle it means bad things are happening (gut projection). Somewhat less enthusiastically negative, a buyer of 35k SFRM6 9700c for 3 covered 9656.5 with 14d. Settled 2.75 vs 9654.
–JOLTS and NFP apparently delayed due to gov’t shutdown. Explained best by Peter Gibbons in Office Space: “I don’t like my job and I don’t think I’m gonna go anymore.”
notes
February 2, 2025
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–WSJ warns markets are ‘choppy’. Overnight ranges ES 100 points, Gold $456, Silver $11. I believe CME has announced that silver margins will increase again post today’s close. Bitcoin is around 77.7k this morning, from 82.8k Friday.
–Small rally in rate futures. Market action being attributed to Warsh, but if stocks really slide Fed will be forced into easing again. Probably nowhere close to that yet, a decline of 20% would take SPX to around 5600.
–ISM Mfg expected 48.5 from 47.9. I believe SLOOS is this afternoon. Treasury Refunding Announcement at 3:00
Warsh-out
February 1, 2026 – Weekly comment
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In the midwest (Wisconsin), some people say “warsh” instead of “wash”, Well Friday was a wash-out in precious metals, but in honor of Eau Claire, WI and my sister-in-law Darla, we’ll call it a Warsh-out.
Precious metals were trounced. SIH6 down 35% from Thursday’s high print to Friday settle, and GCG6 down 15.6%. Bitcoin was also pressured, and is at a new low this Sunday morning (around 78.5k) with a current market cap of about $1.56T. Jensen Huang said Sunday in Taipei that NVDAs proposed $100 billion investment in OpenAI was “never a commitment” and that the company would consider any funding rounds “one at a time”. (BBG)
A friend sent this interesting X post about Warsh and his connections with Druckenmiller, Bessent and Alex Karp (CEO of Palantir).
https://x.com/Globalflows/status/2017313557298479399
The basic idea is that Warsh thinks inflation is driven by government (both the Fed’s balance sheet and excessive gov’t spending). He sees AI as leading to increased productivity. Gov’t waste (fraud) is a large contributor to inflationary forces. Palantir is, according to this article, “…the operational backbone of federal fraud detection. With 42% of its revenues from the US gov’t, Palantir is being deployed across agencies to address excessive fraud and surplus gov’t spending.” If both the balance sheet and fraud are brought under control then inflationary forces ease and rates can be brought down.
Given the emphasis in the above post on Palantir, it’s worth noting that PLTR earnings are released on Monday. Alphabet on Wednesday and AMZN and MSTR on Thursday.
The market’s initial reaction to the Warsh appointment is that a smaller Fed balance sheet means less support for risk assets and long-dated gov’t bonds. While TYH6 and USH6 both settled near the high of the week, the curve steepened with the 2y down 7.6 bps to 3.524% and 30y up 4.4 bps to 4.874%. So 2/30 ended at 135 bps, nearing the cycle high which occurred in early January at 140 bps. Last year’s low was on 7-Feb at 40 bps. At futures settle, I marked 2/10 cash spread at 71.7 bps, a new cycle high. Last year’s low in late Feb was 18 bps. High in 2/10 in the past five years is 158 in early 2021.
Strongest contracts on the SOFR strip were reds up around 10 bps on the week. The peak contract is SFRZ6, 9682.5, which was up 9 on the week. Note that the same relative contract (SFR5) had a high settle of 9705.5 on Oct 16, 2025 and 9710.5 on Sept 24, 2024, just after the first ease of the cycle. So the current level is one-quarter percent lower in price, even with 175 bps of ease.
What I would consider the largest risk facing markets is that the circular money flows endemic to big tech and big government will begin to slow significantly. That risk is NOT currently being reflected in MOVE index (ended at 59.20 in a twelve month range of 139.88 in April to 55.77 this past week), or in VIX, which ended 17.44 in a twelve month range 52.33 to 13.47.
News this week is capped by Payrolls, expected +68k from +50k last. JOLTS on Tuesday. ISM Mfg and Services Monday and Wednesday. ADP Wed.
Quarterly Borrowing Estimate Monday with QRA and auction composition on Wednesday.
OTHER THOUGHTS
Slight nod to increased odds of ease. SFRM6/U6 made a new recent low of -18 (9657.5/9675.5). On the week, it was down 2.5 bps. Low settle in this spread has been -18.5, set in July of last year. SFRH6/M6 settled -19 (9638.5/9657.5). Low settle last year in August was -27.5. Changes related to the Fed’s structure will take a while to play out.
| 1/23/2026 | 1/30/2026 | chg | ||
| UST 2Y | 360.0 | 352.4 | -7.6 | |
| UST 5Y | 383.5 | 379.7 | -3.8 | |
| UST 10Y | 423.5 | 424.1 | 0.6 | |
| UST 30Y | 483.0 | 487.4 | 4.4 | |
| GERM 2Y | 212.7 | 208.5 | -4.2 | |
| GERM 10Y | 290.5 | 284.2 | -6.3 | |
| JPN 20Y | 317.9 | 317.2 | -0.7 | |
| CHINA 10Y | 182.5 | 180.7 | -1.8 | |
| SOFR H6/H7 | -35.5 | -43.5 | -8.0 | |
| SOFR H7/H8 | 18.5 | 18.5 | 0.0 | |
| SOFR H8/H9 | 19.5 | 23.0 | 3.5 | |
| EUR | 118.28 | 118.51 | 0.23 | |
| CRUDE (CLH6) | 61.07 | 65.21 | 4.14 | |
| SPX | 6915.61 | 6939.03 | 23.42 | 0.3% |
| VIX | 16.09 | 17.44 | 1.35 | |
| MOVE | 56.25 | 59.20 | 2.95 | |
Insiders
January 30, 2026
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–Largest trade of the day Thursday was +50k USK 128/131cs for 2. Settled 3 vs 114-24 in USM. Disaster insurance; neither strike had open interest coming in. This morning however, it appears that insurance premium would have been better spent on the downside, as USH6 currently prints 114-23, down half a point from settle of 115-07. Vols actually firmed slightly in rate futures, though there was a late seller of 15k TYH 112^ at 56 (55s ref 111-275). There was a buyer yesterday of 50k April VIX 80c for 0.37. Seems pricey, but the idea of wingy insurance seems to have taken hold across markets.
–The culprit for this early morning’s weakness is said to be Trump’s announcement of Warsh for Fed Chair. After several days of hearing Rieder was front-runner, betting sites or prediction markets or insider playgrounds showed odds for Warsh instantly vaulting higher. The announcement is supposed to occur (to the general public) today, but if Trump is disappointed by the market’s message, there could easily be a delay.
–Crude oil slightly lower this morning after a recent surge. CLH6 ended 2025 at 5722 and settled 6542 yesterday, with constant rumors of another Iran attack.
–Currently stocks and bonds both indicate weakness, with ESH 6932, -60.75. Gold is down 5% and the silver future is down 13%. Given wild price swings recently, maybe Warsh is simply the excuse du jour. Interestingly, MSFT was down 10% yesterday while META was UP 10%. Sandisk (SNDK) reported yesterday. Started the year at 240, closed at a new high yesterday of 540 and prints over 640 pre-open. Some incredibly large capital swings in individual names that suggest instability going forward.
–Contrast that idea with the SOFR strip. The white pack (H6+M6+U6+Z6)/4 settled 9661.125. Reds 9673.125. Greens 9653. Blues 9632.875. So whites/reds settled -12, a nod to the possibility of easing. Red/green and green/blue spreads both settled +20.125, so the red/green/blue fly is at zero. That rolling fly has been a few bps either side of zero, but the notion of a linear curve several years out suggests no clear perception of forward Fed policy, at least in terms of timing.
I will not be ignored, Jay
January 29. 2026
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–Title is from the movie Fatal Attraction (Michael Douglas, Glenn Close, Anne Archer)
–Yesterday, Powell was asked if the Fed takes any signal from the move in gold: (from Google AI)
- No Strong Signal: Powell explicitly stated that the Fed does NOT take a “strong signal” from the increase in gold and silver prices.
- Dismissing Credibility Loss: When asked if the rally indicated a loss of confidence in the Fed’s inflation management, Powell argued this is “simply not the case,” noting that “our credibility is right where it needs to be” based on inflation expectations [indicated by market pricing]
–Gold instantly exploded, trading to a high around $5500, having closed 4980 to end last week. “Man of the worldly mind! DO YOU BELIEVE IN ME OR NOT?” To be fair, gold isn’t simply dismissive of the Fed, it’s the entire monetary and political structure, which is what every sentient human being uncomfortably suspects.
–Early yesterday, TY week5 Friday 111.5p 7 paid for 50k ref 111-21, expiring tomorrow. Settled 6 ref 111-205. Yields ended slightly higher on the day with 10s +2.6 bps to 4.247 and 2s +1 bp to 3.579. 7-yr auction today. Jobless Claims expected 205k, but UPS announced 30k job cuts yesterday (moving away from AMZN deliveries) and AMZN is cutting 16k. The Fed held rates steady. Early buyer added 25k SFRJ6 9675/9687.5cs for 1.25 (delta 5 vs 56; SFRM6 settled 9653.5).
–Ilhan Omar was attacked by a man who sprayed her with apple cider vinegar. It’s unclear why he blamed her for inadequate results related to the diet fad. Of course, we’re in a world where no one seems to be able to connect actions with outcomes, so… it’s a metaphor. As good as any.
Sliding Confidence
Janaury 28, 2026
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–Curve steepened Tuesday with the dollar center-stage, like a bad lounge act (“Murph and the Magic Tones?”). Trump accelerated the move with late comments that he didn’t think the dollar had weakened too much; “it’s great”. Late DXY price 95.74; the low in 2025 was 96.22 coinciding with the September ease, Low yesterday was 95.55. Gold (GCG6) exploded on the comments, rising almost $100 from 5088 to 5180; 5253 at last glance. It’s amazing how Trump regularly undermines his own goals. New challenge for Bessent…
–In May of 2021, DXY was 89.69. By the first tightening of the cycle which was March 16, 2022, DXY was 99.10 (the day prior to the ease). On May 4, the day before the next hike (which was 50 bps up to a target of 0.75-1.0%), DXY was 103.74, eventually surging to 112.60 by September 2022. DXY now below where it was prior to first hike.
–At the futures close, 2y note was down 1.9 bps to 3.569% and tens were +1 bp to 4.221%. High of the move so far in 2/10 is 71.2. USD will get no help from the Fed today, expected to stand pat with a bias toward ease. Will a shift to higher long-end yields finally spark a bid in implied vol? Yesterday settles: TYH6 111-24 with 111.75^ 0’55 (3.8). TYM6 111-20 with April 111.5^ 1’28 (4.0). 7-yr auction tomorrow.
–Chart of Consumer Confidence and Expectations attached. Expectations well underneath COVID low, while current Confidence just clipped that low. Both measures well below Trump.1. However, if you own hard assets denominated in dollars, perhaps leveraged with fixed rates, then happy days.
A few upcoming earnings reports:
28-Jan
META
MSFT
TSLA
IBM
29-Jan
AAPL
SNDK
Can everybody meet their contractual obligations with moves like this?
January 27, 2026
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–Yields across the board down 1 to 2.5 bps. Tens end 4.211, down 2.4. Implied vol in rate futures continues to languish. TYH6 111.75^ settle 0’57 (3.8) with 25 days left. New buyer of 50k SFRZ6 9750/9850cs for 3.5. Settled there ref 9675.0. So Dec’26 is at a yield of 3.25% with FF currently 3.5-3.75%.
–Incredible action in precious metals. SIH6 range 117.70 to 101.70, settled 115.50 but then immediately slid to the lows. Sixteen dollars on a contract that had just broken a price of 100. If gold had a 16% range it would be about $800. As it is, gold’s range was only $124, with Feb gold high 5107.90 and low 4983.60.
–Just for fun: SIZ6 150c settle 15.34. SIZ6 200c settle 8.73. Almost no open interest, but both strikes traded yesterday. In 1942 to 1945 the US mint produced War Nickels with 35% silver, 56% copper, to conserve nickel.
–Consumer Confidence today, which was 89.1 last, right around the covid low, but well above the 2009 housing bust. Five-year auction. FOMC tomorrow. Hopefully the committee will announce plans to print some silver and electricity.
I got one more silver dollar. (Yes I’ve used this one before, but it’s always a good way to start the morning)
