Strap in
January 26, 2025
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–Net changes in rates Friday were modest. Ten year yield -1.2 bps to 4.235%. SOFR strip from H6 to H0 +0.5 to +2.0.
–I mentioned some of Friday’s large trades in the weekend note.
+50k TYK6 109.5p 19. Settled 20 vs TYM 111-155, open interest +49k
+50k TYK6 108.5p 11. Settled 12, open interest +73k
-10 TYH5 111/112.5 strangle 26 to 25. Call settle 12 with OI +29k. Put settle 14 with OI +2k.
MOVE index ended at 56.25. It’s been lower….in September of 2021.
–Precious metals are exploding to new highs this morning. Spot gold 5088, +101 and silver 109.40, +6.21. $/yen continuing Friday’s carnage, -2.07 at 153.62. DXY is just above 97. Lows last year were 96.38 in July and 96.22 in September. Flight to safety is no longer UST. It’s gold.
–Chicago Fed National Activity expected -0.20 from -0.21. Durables. $69 billion 2y note auction. Since October, twos have been in a range of 3.43 to 3.63. Essentially capped by the current EFFR of 3.64 and supported at another 25 bp cut. That cut seems to be centered on the June 17 FOMC; FFK6/FFN6 spread settled -11.5 (9644/9655.5). Other calendars isolating Fed meetings aren’t quite as inverted: FFJ6/K6 is -4.0 (FOMC 29-Apr) and FFN6/Q6 is -6.0 (FOMC 29-July). The latter spread was sold down to -7.5 on Friday.
–In my opinion, odds (though still tiny) are increasing for Trump to be removed from office through Article 25:
Section 4.
Whenever the Vice President and a majority of either the principal officers of the executive departments or of such other body as Congress may by law provide, transmit to the President pro tempore of the Senate and the Speaker of the House of Representatives their written declaration that the President is unable to discharge the powers and duties of his office, the Vice President shall immediately assume the powers and duties of the office as Acting President.
A few trades in a crazy week
January 25, 2026
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BBG headline late Friday:
BlackRock Cuts Value of Private Debt Fund by 19%, Waives Fee
The fund is small, only $497 million [and getting smaller]. “…a string of troubled loans weighed on results” of TCP Capital Corp. One company, Renovo Home Partners, has declared bankruptcy.
From a previous BBG article:
About a month ago, BlackRock deemed the private debt it had extended [thru TCP] to Renovo, a struggling home improvement company, to be worth 100 cents on the dollar. As of last week, the firm had a new assessment: zero.
Image is from The Big Short, with Eisman expressing odds of subprime losses being contained.
It wasn’t too long ago that private credit and private equity were the hot investment themes. So full of, well, promise (is that the word I am looking for?), that Blackrock recommended the idea to retail investors. Recently, a dollop of caution has been introduced. Of course, this past week was chock full of wild moves: Nat Gas has to be the poster-child, surging from a settle of 3.10 on Friday Jan 16, to a high of 5.65 three sessions later. Silver screamed higher on Friday to 103.19, having doubled in two months. $/yen plunged to 155.70 Friday, on the threat of intervention. It was 159.45 the week before last. 10y JGB was 1.65% in late October, and hit 2.35% on Tuesday.
Against that backdrop, VIX has barely budged. It touched 20 last week but fell back to 16.09 Friday. MOVE index is on lows last seen in 2021, at 56.25. Call me crazy, but I think owning a little cheap insurance makes sense.
The FOMC meeting is Wednesday. No change expected. FFG6 has been pegged at 9637 (3.63%) for the past two weeks, against current EFFR of 3.64%. Auctions of two, five and seven year notes occur on Monday, Tuesday and Thursday, leaving Wednesday to the Fed.
I’ve discovered that it’s of little use for me to forecast changes; I am just going to mention a few trades that occurred last week in rates that give some indication of possible scenarios.
Several sessions ago, there was a seller of FFJ6/FFK6 at -4.0. Fed meeting is 29-April An ease at that meeting should take the spread to -24.2. Late Friday quote was -4.0/-3.5. (9640s/9644s)
On Friday there was a seller of FFN6/FFQ6 at -7 to -8. Fed meeting is 29-July. An ease at that meeting should take the spread to -23.4 (July has 31 days so two days would be at new rate). Late Friday the spread was -7.5/-7.0. (9655.5s/9661.5s). Given that a new Fed Chair, who is quite likely to favor easing, may not be confirmed until later in summer, the more inverted spread in later contracts makes sense.
In SOFR, both SFRH6/M6 and SFRM6/U6 settled -15.5. SFRH6 is 9637, on top of the current SOFR setting. SFRM6 is 9652.5 and SFRU7 is 9668.0. So, the Mar/Jun/Sept fly is 0, having been -5.0 on Dec 31. Fed Fund spreads cited above suggest that easing may come later rather than earlier and of course that’s a reason for the fly to rally. However, I can easily envision a scenario where the market prices eases at both the March and April meetings whether the new Fed Chair has been installed or not. (That is NOT being priced, though there’s been buying of both Feb and March 9643.75/9656.25cs for 0.5 and 2.0)
On Friday, there was a seller of SFRU6/Z6 at -5.5, where it settled (9668.0/9673.5). Natural tendency should be a roll down to -15 where June/Sept is now. There has also been consistent BUYING of SFRZ6/H7 around +1.0 (9673.5/9672.5). Dec’26 is the peak contract on the curve, but recall that in mid-Sept, before the last round of easing took place, it was as high as 9716. Earlier this month and in December, SFRH7 was the peak contract on the strip, so Dec/March has been as low as -3.0 to -3.5. I do NOT favor buying Dec’26 as Dec 31 is Thursday so the turn is longer than usual. Keep in mind, the Atlanta Fed Q4 GDP Now estimate is a blistering 5.4% and inflation is sticky.
More deferred 3-month SOFR calendars from SFRM7 forward are more like +4.5 to +5. I favor the idea of being long 6-month calendars further out the curve if they come in to 8 or so. Example H8/U8 settled 10 (9654/9644). Said another way, I might look at selling SFRU6/H7 -4.5 vs buying SFRM7/Z7 +9.5. Perhaps not at this price, but forecasting a high on the strip as being somewhere around the start of next year with a steeper profile after that fits my view.
In treasuries there has been recent flattening, most notable in 5/30 which ended around 100 bps, having been over 114 in the beginning of the month. 2/10 ended 63.5. April to mid-Dec range 44 to 62. High at the start of the year was 71.5. Now it’s all about Fed policy.
With regards to treasury vol, or lack thereof as reflected by MOVE (which might as well be renamed STAY), there was a buyer of 50k each TYK6 109.5p 19 (20s) and TYK6 108.5p 11 (12s). At the futures close, the 10y treasury was 4.235%. From May to October last year 10y yield generally declined, from 4.6 to 3.95. In December the yield was capped just below 4.20. On the JGB/Greenland move it hit 4.295, just above the halfway point of May-Oct.
OTHER THOUGHTS, TRADES
The week before last there was a buyer of around 200k 2QM6 9600p for 3 with SFRM8 (underlying) trading 9653.5. On Friday these puts settled 3.5 vs 9649.
On Jan 8 there was a buyer of over 200k 0QU6 9750 calls for 7.0/7.5 ref 9681. These calls are now 4.0 ref 9664.5.
Just mentioning the above 2 trades as they are opposite directions, but both long premium, sort of a steeper bias (long calls on reds, long puts on greens).
| 1/16/2026 | 1/23/2026 | chg | ||
| UST 2Y | 359.7 | 360.0 | 0.3 | |
| UST 5Y | 382.4 | 383.5 | 1.1 | |
| UST 10Y | 422.7 | 423.5 | 0.8 | |
| UST 30Y | 483.8 | 483.0 | -0.8 | |
| GERM 2Y | 210.9 | 212.7 | 1.8 | |
| GERM 10Y | 283.4 | 290.5 | 7.1 | |
| JPN 20Y | 315.6 | 317.9 | 2.3 | |
| CHINA 10Y | 183.6 | 182.5 | -1.1 | |
| SOFR H6/H7 | -35.5 | -35.5 | 0.0 | |
| SOFR H7/H8 | 17.5 | 18.5 | 1.0 | |
| SOFR H8/H9 | 19.5 | 19.5 | 0.0 | |
| EUR | 115.98 | 118.28 | 2.30 | |
| CRUDE (CLH6) | 59.34 | 61.07 | 1.73 | |
| SPX | 6940.01 | 6915.61 | -24.40 | -0.4% |
| VIX | 15.86 | 16.09 | 0.23 | |
| MOVE | 58.05 | 56.25 | -1.80 | |
Can’t MOVE. It’s below 0 Fahrenheit here in Chicago
January 23, 2026
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–Flattener yesterday as econ data keeps chugging along. Two-yr yield +1.5 bps to 3.61% and tens -0.6 to 4.247%. Vol continues to get absolutely crushed. MOVE ended yesterday at 56.5; it’s been a steady slide since the Liberation Day April high of 140. Example was a new seller of 8k TYH6 111-112.5 strangle at 26, which I marked at 3.85 (low since 2021). Most SOFR straddles yesterday were down 1 to 2.5 bps. TYH6 111.5^ settled 60. A week ago the atm H6 straddle was around 1’06.
–There were a couple of standout TU option trades, both new: +20k TUH6 104.75c, 0.5 paid 20k, and +86k TUH6 105.625c for cab-7 (disaster insurance). TUH6 settled 104-0275; I roughly calculated the 104.75 strike to be about 35 bps otm, call it 3.25% in 2y cash. Options expire 20-Feb. I had recommended buy SFRG6 9643.75/9656.25cs for 0.5 (thanks TS) which is only about 7 bps otm on SFRH6, and expire 13-Feb, traded about 7k. There were some downside plays as well, but I will just highlight a couple of other upside trades: +60k SFRU6 9675/9700/9725/9750c spd 4.75 to 5 (adding, settled 5 ref 9666.5) and buy of 12.5k SFRH7 9725c 10.25 to 10.5, settled 10.5 vs 9670.5.
–JJ from Market Vibes newsletter mentioned bitcoin priced in gold yesterday afternoon. I hadn’t looked previously so I am adding a chart here. Bitcoin priced in gold is down from 40 in late 2024 to 18 currently. When I just glance at bitcoin, it looks like it rallied during the Fed tightening campaign but has weakened since the Sept 2025 easing. In a cruder way, I think gold is supported by physical vaults and guns, while bitcoin depends on the grid (however one wants to define it). A day or two ago there was this item from Jeffries: “The company’s global head of equity strategy believes quantum computing could undermine Bitcoin’s role as a form of digital gold.” (Bitcoin in purple, ratio to gold in white).
Veronika the cow shocks scientists by using a tool
January 22, 2026
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–Trump announces framework for Greenland deal and drops tariff threat. It’s better now.
“Hey Elsie, cover my mini shorts and reverse to go long. While the rest of the herd was out grazing I saw a Bloomberg headline that Trump won’t use force to take Greenland.” “Ok Veronika”
Veronika the Cow shocks scientists by using a tool
https://www.popsci.com/environment/cow-tool-use-veronika
“The findings highlight how assumptions about livestock intelligence may reflect gaps in observation rather than genuine cognitive limits,” Alice Auersperg, a study co-author and cognitive biologist at the university, said. [Alice is now getting a government grant to observe cows in the Swiss countryside]
https://www.cbr.com/the-far-side-best-cow-comics
Stocks and Bonds hit
January 21, 2026
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–One-two punch of new highs in Japan bonds and Trump’s Greenland obsession roiled markets and steepened the US curve. SPX ended -2.06% with Nasdaq -3.54%. Two year yield edged half a bp lower to 3.593% while 30s jumped 8.1 to 4.919% (Friday to Tuesday moves). Flight-to-quality flows into gold, which was up 3.7% to a new all time high; GCG6 settled 4765.80, +170.4.
–Previously one might have expected more of a bid in the front end of the curve, and though the first six SOFR contract settled slightly positive (SFRU6 the leader at +2.0 to 9669.5), blues, 4th year forward were -4.125 and golds, 5th year, were -5.75 at 9607.0. Once again, ten year treasury-tip breakeven squeaked to a new recent high of 235.6 bps. There were a few notable front end call spread buys: +100k SFRH6 9643.75/9656.25cs 2.0 paid (settled 1.75 ref 9638.0) and +100k or a bit more SFRM6 9650/9656.25/9668.75/9675c condor for 1.75. Settled 2.0 vs 9654.0. Sweet spot between the two center strikes is 9662.5 or 3.375%, which works with just one more 25 bp ease. Nothing indicating the possibility of panic easing by the Fed.
–Implied vol firmed across products. TYH6 down 10.5/32 to 111-135. TYH6 111.5^ settled 1’09 (4.4) up from 1’06 Friday.
–Trump at Davos today. Speech scheduled 8:30 EST, though I saw early reports that Air Force One had a mechanical issue and turned back.
A Lower Strike Fed Put
January 20, 2026
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–It could be the beginning of a large risk-off adjustment, but this time not just stocks are wobbly, so are long-dated treasuries. 10y yield now 4.286, up 6 bps from Friday; I project the target from the Sept thru Dec bottom to be around 4.43. The 30y target is 4.98 and it’s getting close, at 4.928 this morning. (5:30 EST) USH6 is currently 114-05. The last time the 30y yield exceeded 5% was in mid-July at 5.02; at that time the front US contract traded as low as 111-11. I currently calculate 5% at around one point away, or around 113-05 on the USH6 contract; I would expect that area to be strong support/resistance.
–Note that Japan yields continue to soar. On Friday 10y JGB was 2.18, now 2.35 and the 20y was 3.16, now 3.45. Since the beginning of November, 20y JGB is up 85 bps.
–Front end SOFR contracts seeing small bid on general turmoil. SFRH7 which has been peak contract on the strip -vying with SFRZ6- settled Friday at 9673 and is now 9677. Recall that previous blow-ups have seen reds get to 9715-9720 area. Somehow I don’t think Powell is going to be quite as accommodative to market stress if things begin to unravel. My thought is that Trump has single-handedly lowered the Powell put strike with respect to equities. ESH6 is currently only down around 112 at 6864.5 and is holding the 100 DMA. I saw a BBG headline flash that traders are piling into otm VIX calls; Jan VIX settles tomorrow and is currently around 20. The peak open interest strike is 20c with 225k of open interest. The 25 strike has 155k open.
–On Friday there was a buyer of 200k 2QM6 9600p for 3.0 around 9653.5 in underlying SFRM8. Settled 4 vs 9650 with open int +84k. Current 9651.5.
Friday seems like a long time ago
January 19, 2026
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–The US honors Martin Luther King today, with most securities markets and banks closed, but CME has an abbreviated morning session.
–It’s a bit surreal that trade tensions have been ratcheted up over Greenland with a new round of Trump tariffs, but that’s where we are, with gold up $75 this morning (GCG6 new high just below $4700). ESH6 is currently down 1.15% (6896) and NQH6 down 1.60% to 25280, -408. Trump is also threatening military intervention, but it’s unclear whether the US has the capability to execute wars on two fronts: Greenland AND Minnesota.
(“We’re not going to Moscow. It’s Czechoslovakia. It’s like going into Wisconsin.” “Well I got the shit kicked out of me in Wisconsin once. Forget it.”)
–USH is currently 114-29, testing lows from early in the month (114-26 on 6-Jan) and potentially revisiting the double bottom of 114-17 in December. Not much in the way of ftq in long treasuries…
–A few notes from Friday: early in the session there was a new buyer of 200k 2QM6 9600p for 3.0. Open interest rose 84k and the put settled 4.0 vs 9650. Technical factors which support a trend are increased volume and open interest, along with a rise in implied vol. Vols did firm and open interest jumped 62k in TU, 61k in FV and a whopping 96k in TY. Given the price action (10y yield rose 6.7 bps Friday to a new recent high 4.227%) one would typically conclude that lower treasury prices are sparking new sellers, whether hedge or spec, confirming the trend. However, a big part of the open interest increase can be attributed to block BUYS: +50k TYH6 111-28 and +20k FVH 108-2675. In any case, settles on both contracts were lower: TYH 111-24 and FVH 108-2325.
–It’s also Blue Monday (third Monday in January). Chicago temps this morning are right around zero fahrenheit to add misery to the Bears overtime loss to the LA Rams. Davos is starting, so we can all hope that world problems can be solved.
In the meantime, I’ll leave you with Blue Monday by New [World] Order. Mark Carney’s band…”But I’m quite sure that you’ll tell me, just how I should feel today”.
Pizza, Beer and Cheap Gas
January 18, 2026 – Weekly Comment
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It’s somewhat ironic that Trump is shifting domestic policy priorities to pizza and beer (or bread and circuses) with a flurry of pronouncements attempting to quell the affordability crisis, which he initially attempted to shrug off: “The word ‘affordability’ is a con job by the Democrats”
At the other end of the socio-economic spectrum, the champagne and caviar World Economic Forum in Davos takes place this week, humorously titled ‘A Spirit of Dialogue’. The global subtext is more appropriately articulated by Conan: “To crush your enemies, see them driven before you, and to hear the lamentations of their women” Or of Klaus Schwab.
From the WEF ‘Risks’ paper prepared for the meeting:
Uncertainty will remain the defining theme for the near future. Half of the respondents expect 2026 to be either “turbulent” or “stormy” in the next two years. Yet, as we take a 10-year risk perspective, this share expands to 57%, with nearly a fifth anticipating ‘global catastrophic’ risks in the offing.
Another fast riser was the risk of the asset bubble bursting, which jumped up seven places. This highlights the volatile combination that might result from the interplay between mounting debts, economic downturn, and uncertain returns on investments in frontier technologies (AI, quantum). Add geoeconomic confrontation into this mix, and the impact could destabilize not only businesses but entire societies, the report warns.
https://www.weforum.org/stories/2026/01/global-risks-2026-top-10-two-and-ten-year-horizon
The TACO shift to capped credit card rates, MBS purchases, 401k taps for home downpayments, delaying student loan garnishments, meeting with Elizabeth Warren, lowering gasoline prices, stopping Blackstone from buying neighborhoods, etc, might be part of the reason treasury yields rose this week. (If that previous sentence reads somewhat awkwardly, it’s supposed to). There is little suggestion of fiscal discipline or restraint. The logical extension, of course, is that the President wants control over the crown jewel (no, not Greenland): monetary policy. Trump in January: “I think I know interest rates much better than they do, and I think I know it certainly much better than the one who’s primarily in charge of making that decision” [Could Rieder really be seriously considering that job?]
Another theme that dovetails with the above is what Ben Hunt might call the narrative of government fraud escalating into common knowledge. Last week Bessent said that up to 10% of the US budget is lost to fraud each year. Reports of malfeasance in Minnesota are breathtaking. Jeff Gundlach in his last presentation ‘Clue’ outlines billions and billions in government waste, mostly in California: $24 billion spent to combat homelessness to no effect, and the 17 yr old high-speed rail plan, in which $30 billion has been spent with not one inch of track having been laid. That project has now been downsized to just one-quarter of the original distance, with a new up-sized budget of $128 billion. (19 minute mark) https://www.youtube.com/watch?v=0LXU2YxbW84
From David Rosenberg’s last presentation: “In the past six years, for the first time ever, the US government has run deficits of 5% of GDP or higher… Over that span we’ve had cumulative budget deficits of $13 trillion but that’s only managed to coincide with expansion in nominal GDP of $9 trillion. So I ask the question: has anyone ever thought of the scenario in which this massive ongoing gov’t support ever reverses course?” https://www.youtube.com/watch?v=6cZX242uDCg
Note that this week, US fives and tens broke out of a four-month base with the highest yields since early September. Fives ended at 3.824%, up 6.9 bps on the week (Sept to mid-Jan range 3.55 to 3.78). Tens ended at 4.227% (3.95 to 4.19). Cumulative 75 bps of Fed rate cuts in the basing period.
More on yields below, but first, this interesting comment on X by EndGameMacro regarding UK banks tapping Bank of England for sterling liquidity.
Initial GBP stress has a habit of evolving into dollar funding pressure. That’s because UK and European banks hold massive USD assets funded through currency mismatches and FX swaps. When markets tighten, banks first shore up domestic liquidity. The dollar problem shows up later.
That’s what makes the timing notable. UK banks just borrowed a record £99.3 billion from the BoE’s short term repo facility. On its own, this can be explained by quantitative tightening draining reserves. But set against a backdrop of rising political pressure on the Fed, it starts to look precautionary. If confidence in Fed independence weakens, so does confidence in unconditional access to dollar swap lines. Banks don’t wait for that risk to materialize..they prepare for it.
European banks hold roughly $3.5 trillion in dollar assets and liabilities. Any hint that swap access could become politicized or conditional and tied to trade disputes or policy demands forces banks to rethink liquidity management.
Is this concept of international swap lines perhaps being weaponized another catalyst for dollar rates to increase?? Will swap lines be questioned as part of the criminal investigation into the Fed?
I believe that the main purpose of the Fed is to be lender of last resort, to guard against a self-reinforcing loop of asset fire-sales (in some cases supported by questionable debt). Perhaps the Fed has carried out that mission with reckless vigor in recent episodes. But what if the bedrock premise frays?
I’m just noting this next item as a curiosity, tangled up in gov’t schemes, mortgage rates, and Fed policy. Fannie Mae (FNMA) settled on its low on Friday, 8.51. On September 12, just before the first Fed cut of the year, it hit 15.99. In late October of 2023, it was 1.43. Trump’s election translated into hopes of a welcoming regulatory environment and potential public offering to unlock the value of the agencies. It took off like silver. No, wait a second, I only wish silver had that sort of percentage gain! Now, even with Fed cuts, the public offering has been delayed, and agencies have been retaining mortgages rather than selling into the market. Fun to watch.
I’m not sure if this next topic is related to the swap line discussion above, but since September, the 30Y swap spread has rallied from -83 bps to -64. Attached is a chart showing the 30y treasury in green and 30y swap in white. Note that while neither yield is above October 2023 highs, the swap rate has made a new two-year high of 4.19 (only bested by the 2023 high of 4.39).
Not a lot of economic news this week, which should be dominated by Davos.
PCE Prices on Thursday. YOY headline and Core both expected 2.8%
| 1/9/2026 | 1/16/2025 | chg | ||
| UST 2Y | 353.6 | 359.7 | 6.1 | |
| UST 5Y | 375.5 | 382.4 | 6.9 | |
| UST 10Y | 417.2 | 422.7 | 5.5 | |
| UST 30Y | 482.0 | 483.8 | 1.8 | |
| GERM 2Y | 210.5 | 210.9 | 0.4 | |
| GERM 10Y | 286.2 | 283.4 | -2.8 | |
| JPN 20Y | 306.1 | 315.6 | 9.5 | |
| CHINA 10Y | 186.9 | 183.6 | -3.3 | |
| SOFR H6/H7 | -41.0 | -35.5 | 5.5 | |
| SOFR H7/H8 | 18.5 | 17.5 | -1.0 | |
| SOFR H8/H9 | 19.5 | 19.5 | 0.0 | |
| EUR | 116.37 | 115.98 | -0.39 | |
| CRUDE (CLH6) | 58.94 | 59.34 | 0.40 | |
| SPX | 6966.28 | 6940.01 | -26.27 | -0.4% |
| VIX | 14.49 | 15.86 | 1.37 | |
| MOVE | 61.55 | 58.05 | -3.50 | |
Front end hammered
January 16, 2026
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–Thursday featured dramatic flattening with the 2y yield up 5 bps to 3.562% and 30s down 0.7 to 4.789%. TYH6 was -8/32 to 112-07 while USH6 was unch’d at 116-10. Attached is a chart of FVH6 which closed at the low and appears vulnerable to lower levels. Only the 2-yr now has a lower yield than EFFR of 3.64%. Fives have positive carry with a yield of 3.762. While econ data was stronger than expected (Jobless Claims 198k and Philly Fed positive 12.6 vs small negative number expected) it feels like there’s more behind the shift to higher yields. (If I KNEW I wouldn’t be sitting here…)
–New recent low in 2/10 at 59.8 puts that spread back in last year’s April to November range; the recent pop to 71 now looks suspiciously like a false breakout. A lot of chatter about mortgages now at the ‘new and improved’ level of 6%. It’s obvious that the admin will do anything it can to manipulate markets in the pursuit of policy goals; the latest being a proposed cap on household electricity prices.
–An amusingly ironic price reaction to policy was yesterday’s pasting of HOOD and COIN, both down over 7%, due to uncertainty over the CLARITY bill. Maybe that’s the dark 2026 theme for markets in general: a lack of clarity.
–However, as I mentioned yesterday, implied vol in treasuries is low and getting cheaper. BBG’s MacroMan Cameron Crise put out an interesting piece yesterday on the low level of realized vol in tens.
–While recent price action suggests the Fed is on hold, one trade from yesterday went the other way: A sale of 35k FFJ6/FFK6 at -4.0 which appears new from open interest. April settled 9641 and May at 9645, so 3.59% and 3.55% vs EFFR 3.64%. The FOMC meeting is April 29, so of course an ease will take the spread to nearly -25 as May gets full benefit of any Fed move and April will have only 1 day at the new EFFR. This spread is a reasonable play on a new chairman, and of course there’s some chance of a 50 bp cut.
Rate futures locked down like the border
January 15, 2026
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–Wednesday featured falling yields, partially due to increasing tensions with Iran. Tens down 2.9 bps to 4.14%. TYH6 +6.5/32 to 112-15. TYG6 112.5^ settled 28/64, expiring one week from tomorrow. DV01 on the contract is $66.60, so straddle is roughly 6.5 bps. This morning oil has reversed, from a high of 62.20 in CLH6 late yesterday to a current level of 59.20 as Trump signaled that no imminent action would be taken in Iran. Stocks have bounced (though rotation yesterday between Nasdaq and midcap/industrial names was a bit manic). Swings in oil, stocks and precious metals are fierce, yet interest rate futures are on lock-down. For example, Jan SOFR midcurves expire Friday. SFRH8, green March, settled 9668.0. The 9668.75 straddle for Friday (2QH6) settled just 3.75 with two full sessions to go. When the Fed was in play, the long-dated straddle on the first red, currently SFRH7, was around 100 bps. Now, with 422 days to go that straddle is half the premium, at 51. SFRZ8 9650^ with 1066 days until expiry, settled 96.75 (ref 9652.5). So, no straddles >100.
–New lows in a few near SOFR calendar spreads. SFRH6/H7 -46.0, down 1.5 on the day (9639.5, +0.5/9685.5, +2.0). H6 is the lowest contract of the first three years and H7 is the peak on the strip. SOFRRATE has compressed toward Fed Effective, with the former 3.65 and EFFR 3.64. So, SFRH6 at 3.605 shows little expectation of ease, and even the forward H7 contract at 3.145% isn’t particularly enthusiastic about Miran’s arguments for 100 bps or more of ease over the coming year.
–2/10 treasury spread remains in a fairly tight range, but has edged to a slight new low of 62.8 (20 session range).
–Economic data is light. Today features Philly Fed expected -1.4 from -10.2 and Jobless Claims, expected 215k. The Fed’s semi-annual testimony to Congress is usually in February, but may be cancelled this year due to charges against Powell/Fed.
