Flight to… somewhere
January 14, 2026
*******************
–Massive trades in TY options Tuesday. TYH6 settled +4 at 112-085, with cash 10y yield -1.9 bps to 4.169. Despite small price/yield change, open interest in TY rose 87k, up around 1.5%. Trades heavily weighted to new call buys (May) and a roll from long March puts into long May puts.
(However, attached chart shows that US bond vol declined, while VIX popped. Other chart at bottom is EURJPY. I guess you could say it’s… trending).
For those that want to skip details, the large new position is basically a long strangle, long TYK 114, 114.5 and 115c and long TYK 110.5p. (call delts 25, 20, 16 and put -25) Covered call player adjusting strategy? If so, a lot more behind…
May options expire 24-April and have TYM6 as underlying.
–The main bullish factor yesterday was Core CPI easing to +0.2 m/m vs +0.3 expected, with y/y 2.6 vs expected 2.7. The situation in Iran is supporting oil (Trump urges protestors to continue and says help is on the way). CLG6 settled 61.15 +1.65, having been around 56 a week ago. This morning it’s near 62, and March Silver is over $90 (+3.77) with the CME rolling out a new 9% dynamic margin.
Funny intermission break:
https://x.com/hvgoenka/status/2011089738036592932
Here are rounded open interest changes/ settles /trades BOUGHT MAY CALLS AND PUTS/SOLD MARCH PUTS ON EXIT
TYK6 114.0c 25s OI +25k
TYK6 114.5c 20s OI +25k
TYK6 115.0c 15s OI +25k (sure, I’d buy that call fly at zero too)
TY week1 Feb 117c +1/50k (new)
TYH6 110.5p 5s OI -35k
TYH6 111.0p 9s OI – 7.5k
TYK5 110.5p 25s OI +50k
SUMMARY of TY MAY opts (not in chronological order, but all from Tuesday)
First, coming into the day, TYK 114c had 30k open, but 114.5 and 115c had only a few hundred each. All of the below positions are NEW in May calls.
TYK 114.0c 25, +25k (& sold 20k TYH 111p at 10)
TYK 114.5c 19. +25k (& sold 20k TYH 111p at 10)
TYK 114.5c 20, +20k cov 112-055
TYK 115.0c 15, +25k
TYH/TYK 110.5p calendar +20 and 21 for 25k each
& notable buy SOFR call condor: SFRU6 9675/9700/9725/9750c cdr paid 6 for 50k (settled 6 vs SFRU6 9675.5).
Little concern about outlier CPI
January 13, 2026
******************
–BBG headline: Takaichi’s Early Japan Election Plans Jolt Yen, Bonds and Stocks. New high in 10y JGB yield at 2.17. $/yen is nearing the 2024 high (yen weaker), currently 158.91 (161 in 2024). Nikkei up 3% to a new high 53549.
–Early weakness in US stocks and bonds related to a criminal probe into Powell/Fed were shrugged off. Solid 3 & 10y auctions with 30y today. Yields ended just modestly higher with 10y at 4.185%, +1.5 bps, TYH6 -2.5/32 at 112-045 (early low 111-315). Peak SOFR contracts SFRZ6 and H7 settled 9681, both down 0.5 on the day. More deferred contracts out to golds were -1 to -3. Ten-yr note/tip breakeven continues to creep higher, now at 232 bps in front of today’s CPI. Implied vol in rates pressing lows, with TYH 112^ 1’11 or 4.0 vol. Example: new seller 7k TYH 111.5/113 strangle at 38. Settled 42 on Friday.
–In SOFR opts, new large trade +60k SFRJ6 9662.5/9675/9687.5 call tree for 0 to 0.25. Settles 7.75/4.75/3.0. These options have SFRM6 as underlying, which settled 9657.0, and expire 10-April. SFRH6/M6 calendar settled at a new recent high -17.5 (9639.5/9657.0). In my opinion, the tree (on its own) is threading the needle: requires perception of (or actual) ease, but not too much. If something happens which really requires EASING, being short the top call could be a problem. In previous cycles there had been a buyer of 12.5 wide otm call spreads in size, which consistently expired worthless. So maybe he’s selling the extra call to make sure that doesn’t happen again…
–CPI today expected 2.7% yoy headline and Core.
–Attached chart is SPX priced in gold. In local ccy SPX and Nikkei are in bull markets. Not so much when priced in real money.
Sell Mortimer, SELL
January 12, 2026
******************
The views in this note are my own, and don’t necessarily represent those of RJO.
–The Trump admin launched a criminal probe against Jerome Powell regarding the renovation of the Fed’s headquarters. Asinine. Anyone with a shred of self-respect currently under consideration to take over as Fed Chair should quietly remove themselves from the running. Reports indicate Pulte of the FHFA is orchestrating the indictment. Bessent didn’t like him before, I would guess that this would only accentuate the divide.
–In honor of the passing of Bob Weir, “Set up, like a bowling pin/Knocked down/It gets to wearin’ thin/They just won’t let you be.”
–Feb gold is up $100 to just over 4600. ESH currently -48 at 6957. The normal template is to try to rally stocks back to unchanged prior to the US open, but might not happen this time. USH is 115-07, down 18 from Friday’s settle of 115-25. Want $200 billion of MBS? Yours. A weaker dollar and spineless Fed doesn’t help the long end.
–Friday featured a hard flattening as Jobs data was better than expected with an unemployment rate of 4.4% vs expected 4.5 from 4.6. Hardest hit were near contracts, M6, U6. Z6 all down 5.5 to 9659.5, 9675.5 and 9681.5 (the latter being peak on the strip). Z7 was -4 (9668.5), Z8 -1.5 (9648) and Z9 unch’d at 9631.5. Implied vol hammered, for example 0QU6 9675 straddle from 52.5 Thursday to 49 settle, 2QZ6 9650^ from 53.0 to 50.5. Ten year breakeven has crept higher from a recent low of 225 bps and ended Friday at a new recent high 230.3. On way to 250…
Weeks Where Decades Happen
January 11, 2026 – Weekly Comment
***************************************
You can tell we’re in the Fourth Turning. The last time the Chicago Bears beat the Green Bay Packers in a playoff game was 1941. A saeculum ago. Right after the Pearl Harbor attack formally brought the US into WWII. Nail-biter come-from-behind win for Chicago!
The original book The Fourth Turning by Stauss and Howe was originally published in 1997. At the beginning of last week, Neil Howe was on Adam Taggert’s Thoughtful Money podcast. Fascinating interview, though quite long.
https://www.youtube.com/watch?v=l86zUCh5FOg
Howe talks about three potential conflicts, 1) internal/civil war 2) geopolitical/China and 3) financial crash. On an optimistic note: “Conflict is the incubator of community.”
Just after the 13 minute mark: he talks about the Gini Coefficient, a measure of wealth inequality: “Great Depression, WWII …long term Gini rose to a high in 1929, fell in the 1930s somewhat. It fell even faster during WWII because of the enormous production that gave high wages to ordinary people [during] the ongoing inflation.”
“Inflation PLUS Wage Control PLUS Financial Repression… this is a package which always comes about during 4th turning climaxes. And it’s a great way of redistributing wealth… FINANCIAL REGULATION…what I call financial repression.” Hmm.
According to the St Louis Fed and other sites, current Gini is between 41 and 42. The recent low mark in 1980 was 34.7.
In any case, events from the past week certainly feel historically pivotal: Maduro’s extraction from Venezuela (including incredible details of tactics and weaponry)
https://x.com/nettermike/status/2009843044028428714
Russia’s firing of an Oreshnik missile (nuclear capable) in Ukraine. Ongoing mass protests in Iran. Trump’s threats to take Greenland. The seizure of several oil tankers.
Domestically: Minnesota and other state (IL) and city leaders openly calling for citizens to defy Federal Gov’t ICE agents (resulting in the death of a protestor and leading to new large public protests). Massive fraud investigations opening in many US states due to abuse and theft of social services resources.
At the same time Trump is bluntly inserting the administration into all sorts of economic/market functions: Instructing his people to buy $200 billion of mortgage bonds. Proposing to cap credit card interest at 10% (which will obviously lead to reduced credit access). Banning corporate ownership of single family homes. Pushing the oil majors to re-enter Venezuela (CEO of Exxon: “We’ve had our assets seized there twice. Under current structure, Venezuela is uninvestable.” Note to Mr Woods, you just MIGHT have your assets seized HERE!). Posting employment data on social media Thursday prior to the official release! Trump’s World Liberty Financial applying for a banking charter to issue/custody stablecoin USD1. Rich fleeing California due to wealth taxes. I have never seen as many social media comments questioning why people should pay taxes at all given the perception of massive waste and fraud.
Obviously it’s a lot to digest, But looking at VIX and MOVE (both near lows at 14.49 and 61.55) it almost feels like markets are being smothered by government intervention. Following is a brief summary of action in rates:
On the week, the two-year yield rose 6.1 bps to 3.536%. Most of that came on Friday, +4.8 bps as the employment report convinced traders that an ease in January is off the table. On the week, February Fed Funds (clean month which captures the Jan 28 FOMC) closed -3.5 at 9637.0. Fed Effective Rate is 3.64 or 9636.0, so odds of an ease have pretty much vanished. SFRH6 settled at 9648.5 on 2-Jan, and 9640.5 on Friday. This contract also prices the FOMC on March 18, and, to a lesser extent, April 29. It’s quite close to EFFR and only 7 bps higher in price than SFRF6, the January 3-month SOFR contract at 9633.5. The most inverted one-yr calendar on the SOFR strip is SFRH6/H7 at -41.0 (9640.5/9681.5). SFRZ6 and SFRH7 are tied for the peak on the strip, and at 9681.5 or 3.185%, the yield is less than 50 bps away from current EFFR. Whether right or wrong, perceptions of the Fed being ‘in play’ have been dramatically tamped down.
On the other end of the yield spectrum, the 30y bond ended the week at 4.818%, that’s DOWN 4.5 bps. 3.9 bps of that drop came on Friday as Trump on Thursday said he was instructing his minions to buy $200 billion in mortgages. It’s clear that Trump’s blurt on mortgages caught shorts offsides. Open interest levels from Friday: US -77.2k a decline of about 4%. (Although net change between FV, TY, UXY and WN was zero).
The one-two punch of ‘no ease’ and the Federal Gov’t buying long paper is clearly a flattener, though 2/10 at 63.4 is, for now, holding at the breakout level of the April through November range of 45 to 63 (high at the beginning of January is 71.5). Ten-yr TIP breakeven has bounced from a recent low of 225 bps to end the week at 230.3.
A large trade on Thursday was the new purchase of 200k 0QU6 9750 calls for 7.25. ~$36 million in premium. These options have SFRU7 as underlying, which was trading 9679 at the time. Expiration is THIS year on 11-Sept 2026. On Friday vol was crushed, and these calls settled 6.0 vs 9674.0. (On Thursday 0QU6 atm 9675^ settled 52.5 ref 9678.5, and on Friday settled 49.0 ref 9574.0).
Earlier in the week on Monday and Wednesday, the TY covered call buyer bought 100k TYH6 114c. On Monday, he paid 14 vs 112-135 with 17d and on Wednesday paid 15 vs 112-180 with 17d, 50k each. This call settled 9 vs 112-07. Instant premium evaporation.
News this week includes Dec CPI Tuesday, expected yoy 2.7 both headline and Core. Nov PPI and Retail Sales on Wednesday. Philly Fed Thursday. Atlanta Fed GDP Now is +5.1% having shot up last week on the huge move in the Trade Deficit to just $29.4b as imports of pharmaceuticals and industrial supplies showed steep declines (a reversal of previous hoarding according to Cameron Crise, and perhaps impacted by potential tariff ruling).
Three and ten year auctions on Monday. Thirty year on Tuesday.
We’re hanging on by a feather:
https://x.com/ValaAfshar/status/2009766549721162118
Like everyone else, Howe has an ETF called HEFT through Hedgeye. (Long short-dated treasuries, long precious metals, long WMT and Dollar General, long Defense).
| 1/2/2026 | 1/9/2026 | chg | ||
| UST 2Y | 347.5 | 353.6 | 6.1 | |
| UST 5Y | 373.7 | 375.5 | 1.8 | |
| UST 10Y | 418.7 | 417.0 | -1.7 | wi 417.2 |
| UST 30Y | 486.3 | 481.8 | -4.5 | wi 482.0 |
| GERM 2Y | 213.8 | 210.5 | -3.3 | |
| GERM 10Y | 289.9 | 286.2 | -3.7 | |
| JPN 20Y | 297.4 | 306.1 | 8.7 | |
| CHINA 10Y | 184.3 | 186.9 | 2.6 | |
| SOFR H6/H7 | -39.0 | -41.0 | -2.0 | |
| SOFR H7/H8 | 22.0 | 18.5 | -3.5 | |
| SOFR H8/H9 | 22.5 | 19.5 | -3.0 | |
| EUR | 117.19 | 116.37 | -0.82 | |
| CRUDE (CLG6) | 57.32 | 59.12 | 1.80 | |
| SPX | 6858.47 | 6966.28 | 107.81 | 1.6% |
| VIX | 14.51 | 14.49 | -0.02 | |
| MOVE | 62.36 | 61.55 | -0.81 | |
I can recall when there were RULES against front-running
January 9, 2026
****************
–Payrolls expected +70k
Unemp rate expected 4.5% from 4.6%
Prelim Mich Sentiment expected 53.5 from 52.9
1y inflation 4.1% from 4.2%
–Huge trade of the day, buyer of approx 230k 0QU6 9750c, mostly paid 7 outright for 150k, then paid 7 covered 9678 (17d) for 45k and 7.5 (17d) vs 9680 for 35k. Prelim CME open interest report did not capture the volume, though total open interest in the strike reportedly +159k to 201k. Settled 7.25 vs SFRU7 9678.5.
–Amusing that this call option with 2.5% strike was bought in nominal size of $230 billion just before Trump blasted a social media post instructing his representatives to buy $200 billion in mortgage bonds. Apparently that edict falls to the FHFA, and it has previously been reported that mortgages retained on Fannie and Freddie balance sheets had already expanded by $55 billion. I.e. the intervention was ALREADY occurring. While bonds rallied on Trump’s post, I’m not at all sure that the kneejerk reaction makes sense. Federal gov’t meddling in every aspect of the economy in haphazard fashion will likely pump up term premium.
–Could be worse. It could be raining (or could be Iran).
–In any case, at the 2pm Chicago settle, TYH was 112-08 with 10y yield +4.7 bps to 4.181. Post Trump TYH rallied to 112-125, but this morning it’s back to 112-055.
–I’ve added a chart I posted on X, of the rolling second slot red SOFR contract. All red SOFR contracts have been capped at 9720 to 9730 over the past 4 years. It’s somewhat interesting to compare that cap with the prevailing FF rate. For example, in early 2023 we had the Regional Bank flare-up with SVB failure. SFR7 to 9731 with FF 4.625%. That is, the forward SOFR contract traded around 193 bps BELOW FF. In August of 2024, the yen-carry panic hit, prompting the Fed to cut 50 in Sept. SFR7 to 9727 with FF 5.375% or 264 under (or 214 under given the 50 bp cut). April 2025 Liberation Day, SFR7 9728 with FF 4.375 or 165 under. So, it hasn’t been uncommon for reds to trade WELL below FF on blow-ups. With current FF 3.625, if the reds were to trade just 150 under, that would be 2.12 or 9788. It happens once a year….
New Fed Chair sits on his hands?
January 8, 2026
****************
–Near contracts suggest that a January ease is becoming less likely. SFRH6 settled -1 at 9645.5 and FFG6 (February is a clean month which prices the Jan 28 FOMC) also settled -1.0 at 9640. Current Fed Effective is 3.64 or 9636.0, so FFG suggests only ~15% chance of ease. While SFRH6 was -1.0, SFRH7 was +1 at 9689 and H8 +2.5 at 9670.5. Treasury curve flattened as well, retreating from last week’s recent highs. 2y -0.4 bp to 3.465% and 10y -4.1 to 4.134%. TYH6 112-185s with H6 112.5^ 1’23.
–After the Jan FOMC, the next meeting is 18-March. SFRH6 options expire 13-March. SFRH6/SFRM6 calendar spread, which brackets the end of Powell’s chairmanship, settled -21.5 (9645.5/9667.0). The prospect for large, immediate rate cuts associated with a new Trumpian Fed Chair would suggest a calendar spread price well below -25; that idea has fizzled.
–Pre-holidays the 50k lot clip covered call buyer in TYH had bought 100k 113.5c and 50k 113k. After the break, likely the same buyer +50k TYH 114c for 14 vs 112-145, 17d on Monday and +50k TYH 114c 15 cov 112-18, 20d yesterday. OI in 114c up 38k yest to 124k. Switching to lower deltas; likely more to buy. Also a buyer of 30k TYG6 111p yesterday for 2.
–While it’s sometimes hard to establish cause/effect price changes in rate futures given econ data, there was no such ambiguity with Trump saying he wants to curb corporate buying of single-family homes. Blackrock (BX) -5.6% and Blackstone (BLK) -3.3%. Yesterday JOLTS lower than expected and near recent low at 7146k but Service ISM was stronger at 54.4.
–NFP is the big release for Friday. Today: Job Claims expected 212k from 199, Challenger Job cuts, Unit Labor Costs and Productivity, Consumer Credit.
SOFR contracts indicate nagging concerns of stronger growth and higher inflation?
January 7, 2026
****************
–Early yesterday morning Fed Governor Miran suggested the Fed may have to ease by more than 100 bps this year. However, by day’s end the SOFR curve had flattened with SFRH6 down 2 bps to 9646.5 and M6 down 3 bps to 9667.0 while more deferred contracts were -0.5 to unch’d. The lowest contract, SFRH6 at 9646.5 vs the peak contract, Z6 at 9688.0 only has a spread of -41.5. Current Fed Effective is 3.64 with Monday’s SOFR RATE 3.70. End of year rate expressed by SFRZ6 is 3.12%. Even with the prospect of a new Fed Chair, the market just isn’t embracing the idea of another 100 worth of rate cuts. To get a sense of yesterday’s flattener: H6 -2 9646.5, H7 -2 9688, H8 -0.5 9668 and H9 unch’d 9646.5. So H6 and H9 are the exact same price. In treasuries, 10y yield rose 1.2 bps to 4.175%. TYH6 settled 112-105, -3/32. TYH6 112.5^ continues to reflect falling vol at 1’21 (4.2) new recent low.
–Large trade yesterday was an exit sale of 200k FFF6 at 9636.5. As mentioned yesterday, odds of an ease at the Jan 28 meeting are less than 20%. If EFFR remains at 3.64 and the Fed eases on Jan 28, the new EFFR should be 3.39, and the final Jan settle would be 96.384 (28 days at 3.64 and 3 days at 3.39). No ease means 96.36. Of course, there’s a risk that a setting of 3.65 could occur….
–It’s not uncommon to see some high gamma put buys in front of employment data, but not typically in US, more like 5s or 10s. However, yesterday a new buyer of 12k each US wk2 114.5p for 16-17 and 114.0p for 6 to 7. Settled 14 and 7 ref 115-05. These options expire Friday, on unemployment day. Also a new buyer of 80k TYG6 117.25c for c-7. (He must be expecting the Greenlanders to mount stiff resistance, sparking an extraordinary bid for safety…)
–Today, ADP weekly +50k expected vs -32k last. ISM Services 52.2 from 52.6. JOLTS 7600 vs 7670 last.
Muted market reaction
January 6, 2026
****************
–Markets were calm following the weekend extraction of Maduro. Like a bad tooth. With an immediate implant all ready. US interest rate futures drifted higher in quiet trade. On the SOFR strip reds through golds (years 2, 3, 4, 5) were up 2.5 to 3.5, with peak contract remaining SFRZ6 at 9690.5 (3.095%). Ten-yr yield fell 2.4 bps to 4.163%. Implied vol in rates remains pinned near recent lows. TYH 112.5^ settled 1’25 (4.4) vs 112-135. New seller of a strangle strip: TYH 111/111.5/112 p strip with TYH 112.5/113/113.5c strip, 2k sold at 2’30. The buyer of 50k lot clips of 113 and 113.5 calls has been quiet over the holidays, but yesterday a new buyer of 50k TYH6 114c for 14 covered 112-145, 17d. The earlier buys, both in this and previous cycles, were 30-33 delta calls, so may or may not be related. Japan 10y yield made a new high for the move and is 2.13% this morning, up 100 bps in the past year.
–Feb Crude ended up a buck at 58.32, Precious metals and bitcoin jumped, perhaps supported by the idea of demand for assets outside of gov’t jurisdictions. Rumors are swirling about Iran’s leadership, but the prospect of destabilization is hardly translating into market pricing. ESH6 ended +43.25 at 6943.25. Feb Fed Funds settled unch’d at 9640.5 vs current EFFR of 3.64 or 9636.0. Next FOMC is 28-Jan and Feb is a ‘clean’ month, so as of now odds of another cut are a bit under 20%. Lowest one-yr SOFR calendar is H6/H7 at -41.5 (9648.5/9690) and in FF’s, J6/J7 is -45.0 (9651/9696). While the bias still favors easing, pricing is muted.
Happiness is a warm gun (not the warmth of collectivism)
January 4, 2026 – Weekly comment
*************************************
Today’s title contains quotes from the Beatles and NY Mayor Mamdani. I favor the Beatles.
The summary below from Kathryn Rooney Vera, Chief Market Strategist at StoneX, captures the essence of Venezuela.
Venezuela. After years of hyperinflation, capital flight, institutional collapse, and destruction of productive capacity, Venezuela’s economy has been collapsed for years. Entirely dependent on oil, exports have regardless suffered from infrastructure decay, sanctions, and repeated operational disruptions. The collapse reflects prolonged state control and systematic erosion of private enterprise. Nationalization, authoritarian governance, and the loss of property rights destroyed incentives, eliminated foreign direct investment, and hollowed out the energy, food, and industrial sectors. Roughly 8 million Venezuelans emigrated, one of the largest modern diasporas. The human cost remains severe in a country with vast natural resources. Any durable recovery requires rule of law, credible institutions, private ownership, and market incentives.
The quote below is from the Venezuelan man on the street:
“To those who say that the United States is only interested in our oil, I ask those people: What do you think the Russians and the Chinese wanted… The recipe for Arepas?”
https://www.allrecipes.com/recipe/238510/homemade-arepas
From Xi’s New Year address: “Compatriots on both sides of the Taiwan Strait are bound by blood ties thicker than water. And the historical trend toward national reunification is unstoppable.”
US actions in Venezuela and South America could speed up China’s plans, without much interference by the US. Is the supply of high-tech chips (primarily fabricated in Taiwan) possibly threatened, as has already happened with rare earth magnets? Judging by the price of oil, already near lows of the past five years (CLG6 57.32s), it’s not all about hydrocarbons. Repeating from Alyosha Market Vibes on Wednesday: “Oil prices, adjusted for inflation, are ending 2025 lower than they were before the OPEC embargo in October 1973.”
From FT, Dec 31 (Song Jung-a): “Consumers should prepare for price increases this year, of as much as 20% for smartphones, computers and home appliances, analysts and manufacturers have warned, as artificial intelligence demand drives up the cost of memory chips used in electronics. Consumer electronics makers including Dell, Lenovo, Raspberry Pi and Xiaomi have warned that chip shortages were likely to add to cost pressures and force them to raise prices, with analysts forecasting increases of 5 to 20%. Dell’s chief operating officer Jeff Clarke said during an earnings call in November that the company had never seen ‘costs move at the rate’ they were rising now and the impact would inevitably reach consumers.”
From google: Taiwan supplies the vast majority of the world’s most advanced computer chips, with estimates suggesting over 90% of the most sophisticated logic chips come from the island, primarily through Taiwan Semiconductor Manufacturing Company (TSMC). Overall, Taiwan accounts for roughly 60% of global chip output, making it the undisputed leader in semiconductor manufacturing, critical for everything from smartphones to AI.
In a multipolar world where supply chains are increasingly uncertain, the US needs fabrication facilities for rare earths and high-tech chips. Big projects with big capital needs. According to yahoo finance, the Trump admin has already taken equity positions in five companies: Intel, MP Materials, Lithium Americas Corp, Trilogy Metals and US Steel, in addition to taking a cut from NVDA. The already voracious appetite for capital related to data centers and electricity is likely to increase rapidly. While some individual companies may benefit from federal takeovers investment, US interest rates, especially at the long end, are likely to see increased upside pressure. One might hope that privatization would unleash productive capabilities in South America, (just as the US seems to be drifting towards nationalization). It’s no surprise to me that bitcoin, an asset ostensibly outside of government control, saw some firming over the weekend.
I always assume that large players have the inside scoop on big events like this weekend. US 10s and 30s ended at the highest yield levels since early Sept. German 10y bund finished at 2.90%, only exceeded by the October 2023 high of 2.966%. Japan 10y JGB at 2.06%, just below the end of the year high of 2.078%. New high Exxon (XOM) 122.65, only exceeded by the 2024 all-time-hi 126.34. Nice bounce in Chevron (CVX).
Signs are piling up that a bear market in equities could start: Oracle stock and CDS price. Blue Owl pulling out of an ORCL financing deal. Apollo Capital paring back all risk to get a clean balance sheet. Local elections where people are united against one thing: data centers that jack up electricity prices and threaten water supplies. Private Equity funds selling…to THEMSELVES. (Buying companies out of existing funds and starting new funds with new investors).
In states and markets, perhaps the theme of 2026 is ‘Regime Change’.
Payrolls released Friday, January 9. NFP expected +59kwith an Unemp Rate of 4.5 vs last at 4.6.
OTHER THOUGHTS, TRADES
2/10 treasury spread ended at a new high 71.2 (3.475/4.187). The high in April was 64.2. This is the highest level since early 2022 prior to the hiking cycle. Red/gold pack spread ended at 63.5 bps (9680.5/9617.0). These two spreads tend to track, but in April red/gold reached 80.875 bps. Having said that, red/gold is still above the highest level in 2022 which was 48.75. Below is a graph of 2/10 in white and red/gold pack spread in pink.
Directionally blue/gold tends to track 10/30, which I believe is a good proxy for measuring term premium. Same as red/gold, 10/30 is near recent highs at 67.6 (4.187/4.863) while blue/gold, at 19.25 (9636.25/9617.0) is well below April’s high of 25.75. Chart below, US 10/30 in white and rolling blue/gold SOFR pack spread in blue.
My interpretation, which has NOT worked well this past year, is that deferred SOFR contracts, blues and golds are likely ‘rich’. I think curves will continue to steepen.
| 12/26/2025 | 1/2/2026 | chg | ||
| UST 2Y | 348.1 | 347.5 | -0.6 | |
| UST 5Y | 369.6 | 373.7 | 4.1 | |
| UST 10Y | 413.4 | 418.7 | 5.3 | |
| UST 30Y | 481.8 | 486.3 | 4.5 | |
| GERM 2Y | 214.0 | 213.8 | -0.2 | |
| GERM 10Y | 286.1 | 289.9 | 3.8 | |
| JPN 20Y | 295.9 | 297.4 | 1.5 | |
| CHINA 10Y | 183.3 | 184.3 | 1.0 | |
| SOFR H6/H7 | -39.0 | -39.0 | 0.0 | |
| SOFR H7/H8 | 18.0 | 22.0 | 4.0 | |
| SOFR H8/H9 | 19.5 | 22.5 | 3.0 | |
| EUR | 117.72 | 117.19 | -0.53 | |
| CRUDE (CLG6) | 56.74 | 57.32 | 0.58 | |
| SPX | 6929.94 | 6858.47 | -71.47 | -1.0% |
| VIX | 13.60 | 14.51 | 0.91 | |
| MOVE | 58.50 | 62.36 | 3.86 | |
Going Back
January 2, 2026
*****************
–Wednesday featured a new high in 2/10 treasury spread at 68 bps (3.463/4.143). The low for the year was posted in February at just over 18 bps. Wed’s high hadn’t been seen since early 2022, just prior to the onset of the (flattening) hiking cycle. Since early April the spread traded a relatively tight sideways range from about 45 to 62, so we appear to be in an upside breakout. The high in 2021 was 158, but that, of course, coincided with zero FFs.
–And we’re NOT going back to ZIRP, right? Well, just in case, there has been a buyer of 9900 calls on both SFRU6 and SFRZ6, mostly done via spreads like 99/100 call spreads and 99/100/101 c flies. As an indication, here are open interest and settles: SFRU6 9684.5, 99c 1.75s, OI 87k. 100c 0.25s, OI 89k. SFRZ6 9689.0s (peak on SOFR strip). 99c 2.25s, 87k. 100c 0.5s, 79k. 101c 0.25s, 40k. On Friday, there was a new buyer of SFRZ6 99c for 2.25 and just under (OI +31k, included in above). In some ways, owning SFRU6 100c for 0.25 makes some sense, but I am sure they’re bid.
–Switching to the opposite end of the yield curve, USH6 settled 115-19 at Wednesday’s early holiday mark. During the remaining electronic session the contract traded as low as 115-04 (this morning it’s 115-11, having printed an early morning low of 114-28). USH6 low in December was 114-17. Maybe the extreme 2026 trade is long SFRU6 100c and long USM6 100p, settled 7 ref 115-05. If both sides go itm, it’s Miller High Life for everyone! Or…the end of the world. Maybe both.
–From Alyosha (Market Vibes) “Oil prices, adjusted for inflation, are ending the year [2025] lower than they were before the OPEC embargo in October 1973.”
–By the way, KAOS might have been the first to trade 100 calls…back in 2008. He kept the card:
‘Where we’re going we don’t need roads.”
