Happiness is a warm gun (not the warmth of collectivism)
January 4, 2026 – Weekly comment
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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
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–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.”
Fed STAFF summary does not justify further easing
December 31, 2025
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HAPPY NEW YEAR to all!!
–First, as of this note March Silver is 71.58, down 6.34. Unsurprisingly, the CME again raised margins on prec metals, with Silver going from $27.5k to $35,750. Gold initial margin went from $24.2k to $26.4k
https://www.cmegroup.com/content/dam/cmegroup/notices/clearing/2025/chadv25-399.pdf
–Once again, rate futures/options were quiet yesterday. 2y yield fell 1 bp 3.45%, tens rose 1.6 to 4.128 and 30s up 1 to 4.812. 2/10 treasury spread squeaked to a new high 67.8. In SOFR, the peak contract remains SFRZ6 at 9691.5 which was unch’d. New buyer of 20k 0QZ6 (SFRZ7 underlying at 9677.5) 9750/9800cs for 5.75 to 6.0, settled 5.75. SOFR curve edged a bit steeper, for example red to green pack spread (2nd to 3rd year) rose 1 bp to 22.25 bps. (9685.0/9662.75)
–I didn’t read the entirety of the Fed minutes, but I am often struck by the difference between “STAFF” discussions and “MEMBERS or PARTICIPANTS”. If one just reads the STAFF projections, there is NO case made for additional rate cuts, in fact one might conclude the opposite. My personal perception is that staff presents the FOMC with politically unbiased information. According to the financial press (and, indeed, SOFR calendars) the narrative is an expectation of additional rate cuts (BBG). But here’s a small clip from STAFF:
Staff Review of the Economic Situation
The information available at the time of the meeting indicated that real gross domestic product (GDP) had expanded moderately over this year. The unemployment rate had edged up and the pace of payroll employment increases had slowed through September; more recent labor market indicators were consistent with these developments. Consumer price inflation had moved up since earlier in the year and remained somewhat elevated.
Real private domestic final purchases—which comprises PCE and private fixed investment spending and which often provides a better signal of underlying economic momentum than does GDP—appeared to have risen faster than GDP over the first three quarters of the year but also had slowed relative to last year.
–A lot of the discussion centered around reserves management. As Powell alluded to in the press conference, there’s substantial concern about the April tax date which will draw funds out of reserves and into the TGA. I’m sure the Fed will provide plenty of liquidity. Bessent had mentioned some time ago that tax refunds would be large in Q1, however, the gov’t appears to expect HUGE tax payments in April. Again, would that be a sign of a faltering economy in need of monetary stimulus?
The manager next discussed the expected trajectory of key components of the Federal Reserve’s balance sheet. Over the next several months, seasonal fluctuations in nonreserve liabilities were projected to lead to significant declines in reserves at the end of December, in late January, and especially in mid-to-late April if securities holdings in the System Open Market Account (SOMA) were to remain unchanged. The manager noted that the projected fall in reserves in April caused by tax inflows to the Treasury General Account (TGA)—which is a Federal Reserve liability—was particularly large and thus judged that reserves were likely to fall below the ample range if the size of the SOMA portfolio were to remain unchanged. [Fed needs to buy t-bills]
–One side note: SF Gate reports that Las Vegas air traffic has posted a decline for ten months in a row. Gambling site cannibalization? Or general slowdown?
Finally, Dominick Critelli, a 104 year-old WWII vet performs the national anthem at a NY Islanders game.
Red Flags
December 30, 2025
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–Yields edged slightly lower Monday with tens down 2.2 bps to 4.112%. SOFR curve biased steeper. SFRH6 unch’d at 9649, but H7 was +3 at 9691, and then things tailed off, with H8 +1.5 at 9671.5 and H9 +1.0 at 9651.5.
–Precious metals were slammed and bitcoin also ended near the low of the day, with several recent rejections having occurred around 91k (Jan futures). SIH6 settled 70.46, down nearly 9%. Barely worth noting, but I marked 10y breakeven at a new recent low 224.8 bps, though the range over the past month has only been 4.4 bps from 225.2 to 229.6.
–Interesting article (original source FT):
Private equity firms sold companies to themselves at an unprecedented rate this year, using a controversial tactic to hold on to assets as managers struggled to find buyers or list their investments.
First reported in the Financial Times, roughly a fifth of all private equity (PE) sales in 2025 involved groups raising money from new investors to acquire businesses from their older funds.
This was up from 12 to 13 per cent the prior year, according to Sinha Haldea, global head of private capital advisory at Raymond James.
If this isn’t a red flag, nothing is.
https://www.cityam.com/private-equity-firms-sell-assets-to-themselves-at-a-record-rate-in-2025/
–FOMC minutes this afternoon. They eased. Further easing is NOT a given as there’s still tension between jobs and inflation. There.
–News reports of corruption involving billions in gov’t handouts to shell social agencies in Minnesota and elsewhere are almost viral enough to make mainstream news. If only there were some agency in charge of rooting out corruption and forcing efficiency in gov’t…
It’s a reddit market
December 29, 2025
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–CME higher margin for silver is in effect, $27,500 initial. The range so far, just for today, in SIH6 is 82.67 to 73.71, or 8.96 or $44800.
–Friday featured a bounce in the curve, with 2s down 2 bps to 3.491%, 10s unch’d at 4.134 and 30s +2.4 to 4.818%. I marked 2/10 high of the year so far at 67.4 (marks taken at the time of futures settle) with Friday at 65.3.
–According to BBG, VIX ended Friday at a new low for the year 13.6. MOVE at 58.5 low since late 2021, before hiking cycle started.
–The lowest quarterly SOFR contract is SFRH6 at 9649.0 or 3.51%. The high is SFRZ6 at 9689.0 or 3.11%. All SOFR contracts out to March’29 lie within this 40 bp band, pretty stark contrast with precious metals volatility.
–Full screen day both Wednesday and Friday for CME.
(funny)
Minsky New Year!
December 28, 2025
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“We defined [the debt] as a python, wrapped around our necks, we couldn’t breathe properly, around our chest, our ribs, and the legs. That is why we set out to do what we did.” [DOGE?]
As it stands, 94 per cent of that has now been restructured and Fitch predicts government debt will decline from 114 per cent of GDP in 2024 to 93 per cent in 2025 and 85 per cent next year.
“We have got a recovery but it’s uneven at the moment. The parts that are recovering are big and therefore making a significant impact on the overall macros. But the job now is to convert all of that into benefit for the individual right at the bottom.”
“The price of goods is starting to stabilise. Before that, it was going like a rocket. As of now, the president has got long-term policies,” he says.
The above clips sound like they could refer to the US economy. Excessive gov’t debt. A K-shaped economy that’s driven by data center spending/financial assets and not filtering through to the lower masses. Inflation has decelerated but still manifests in widespread unaffordability.
However, this article isn’t about the US, but rather Zambia and its President Hichilema. I would note that the St Louis Fed site pegs US Gov’t Debt to GDP at 118%, so there’s a bit of catching up to do to get to Zambia. Fascinating piece, with Zambia’s prospects driven in parallel to the AI data center boom due to the primary export of copper, with both China and the US angling to secure supplies. According to another article, Zambia supplies around 4% of the world’s copper and sits on huge reserves.
Of course, market focus this past week was dominated by precious metals, especially silver. YTD:
Silver +168% (up 18% last week) 79.27
Gold +70% to 4533.20
Platinum +166% to 2468.60
Palladium +112% to 1941.55
Copper +43% (using rolling first future, 576.65)
Regarding silver, China has announced new export restrictions effective Jan 1, 2026. The CME has jacked up margin requirements, announced late Friday, effective Monday. Silver from $24.2k initial to $27.5k. Gold from $22k to 24.2k. Note that Wednesday to Friday gain in SIH6 was 5.51 or $27550 for one contract. I would guess we’re in for a series of margin increases.
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There’s nothing further here for a warrior. We drive bargains; old men’s work. Young men make wars. And the virtues of war are the virtues of young men: courage and hope for the future. Then old men make the peace. And the vices of peace are the vices of old men: mistrust and caution. It must be so.
–Prince Feisel to TE Lawrence, Lawrence of Arabia
I would frame ‘mistrust and caution’ as counterparty risk. The warriors have torn through markets. Now the question becomes one of forward commitments. Can they be honored? There are obvious signs of stress. In this transition, it’s interesting to highlight Apollo’s pivot to an extremely defensive posture. (Financial Times, Dec 22). CEO Marc Rowan, “We believe that prices are high, that rates – long rates – are not likely to plummet, and that we have enhanced geopolitical risk.”
In a series of private meetings and public appearances this month, Marc Rowan has been candid about his pessimistic outlook on the current investment climate. “As a company, not only are we in risk-reduction mode, but our balance sheet is also in risk-reduction mode,” Rowan told investors, citing a “cash-is-king” philosophy. …his top priority is building “the best possible balance sheet” to ensure the firm is ready to profit when “bad things happen.”
Apollo (APO) has $908 billion in assets. Market cap is $86b. YTD stock down 10%.
Washington Post reports that corporate bankruptcies are accelerating, with 717 filings though November, 14% more than the same time in 2024. “…most apparent among industrials and consumer-oriented businesses with discretionary’ products or services.”
In a sign of term-premium expansion, 10/30 yield spread is near the year’s high at 68.4 bps. The high in August was 69.7. Low in Jan was just 18 bps. So, while the range in the 10y has been between 4.19 and 3.95 since early September (3 eases since then), the long bond yield has pressed higher, ending the week at 4.818% (low of 4.53 since Sept). In the meantime, WTI is closing out the year near the lows, with CLG6 56.74. Low for the year has been 54.98, which is the lowest since 2021, before the hiking cycle ever started. However, the Bloomberg Commodity Index (BCOM) ended Friday at a new HIGH for the year, at 112.47. Gold and silver make up just over 30% of the index, NatGas, WTI and Brent combined account for about 17%. A couple of sidenotes, from Nov 2021 to early March 2022, BCOM surged 39%, a burst of inflationary impulse. The first Fed hike of the cycle was in March 2022. Currently, from a low in mid-August, BCOM is up 13%. A sign of a new general price surge? Ten-yr breakeven is NOT forecasting that, ending the week around 225 bps from a recent high of 244 in late August. But the long-bond is whispering caution.
One other interesting item: this year, especially since mid-August, BCOM and the MOVE index have completely diverged, with MOVE ending at 58.5, the low since late 2021, and BCOM at its highest level since late 2022, early 2023. It seems to me that Apollo is trying to get in front of the Hyman Minsky ‘Financial Instability Hypothesis’ reflected by both MOVE and VIX: stability breeds instability. Chart below.
On the week changes in treasury yields were within a couple of basis points. SPX edged to a new all-time high. Japanese bond yields likewise remain pinned close to the year’s highs. VIX ended at 13.6; there were a couple of lower prints in 2024, but this is easily the low for calendar year 2025.
| 12/19/2025 | 12/26/2025 | chg | ||
| UST 2Y | 347.5 | 348.1 | 0.6 | |
| UST 5Y | 369.8 | 369.6 | -0.2 | |
| UST 10Y | 414.9 | 413.4 | -1.5 | |
| UST 30Y | 482.6 | 481.8 | -0.8 | |
| GERM 2Y | 215.3 | 214.0 | -1.3 | |
| GERM 10Y | 289.4 | 286.1 | -3.3 | |
| JPN 20Y | 296.8 | 295.9 | -0.9 | |
| CHINA 10Y | 182.6 | 183.3 | 0.7 | |
| SOFR H6/H7 | -41.0 | -39.0 | 2.0 | |
| SOFR H7/H8 | 20.0 | 18.0 | -2.0 | |
| SOFR H8/H9 | 21.0 | 19.5 | -1.5 | |
| EUR | 117.10 | 117.72 | 0.62 | |
| CRUDE (CLG6) | 56.52 | 56.74 | 0.22 | |
| SPX | 6834.50 | 6929.94 | 95.44 | 1.4% |
| VIX | 14.91 | 13.60 | -1.31 | |
| MOVE | 59.41 | 58.50 | -0.91 | |
In: Eurodollar Options
Metals
December 26, 2025
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–The median home price in the US is $430k. This morning, with SIH6 at $74, the notional value of one contract is $370k (5000oz). A gold contract’s notional value is $453.5k. On the day before Thanksgiving, Nov 26, SIH6 was 53.60, a sizzling gain of 38% since then. April platinum is up 50% in that same time span. According to BBG, initial margin on a silver contract is $24.2k or about 6.5% of notional. My guess is that margins will be jacked up. Currently SIH6 has 111,935 contracts open, just under 600 million ounces.
–Yields edged a bit lower Wednesday. Tens ended at 4.134%, down 3.1 bps. TYH6 settled 112-165, and the 112.5^ at 1’35 or 4.4. Treasury vol remains at the year’s low, and in fact is at or under the level from 2021, before the Fed hiking campaign ever started. Are precious metals (and copper) a signal of renewed inflationary impulse?
Merry Christmas to Yukon Cornelius!
December 24, 2025
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–Story continues to be silver (and other precious metals). Low settle in SIH6 in December was 57.49. This morning it prints 72, up 25% in less than one month.
–I don’t know if precious metals enter the inflation calculation, but Q3 price index printed 3.8% with GDP a sizzling 4.3%. So nominal growth 8%. Doesn’t feel like it… and the market isn’t buying it and obviously the Fed isn’t, having just cut, noting that inflation is still on track to the 2% target.
–In rates, the SOFR curve flattened. Weakest were SFRU6 and SFRZ6, both -4 at 9679.5 and 9684. Dec’26 is now the peak contract (loosely thought of as terminal rate) and it’s now 3.16%. So Z6, -4, Z7 -2 at 9670.5, Z8 -0.5 at 9651 and Z9 unch’d at 9634.5. Buyer added to position: +10k SFRU6 99.00/100cs for 1.25 to 1.5, both strikes now have >85k. He also has Z6 99/100/101 c flies in the book. Hey, if silver can make new all-time highs, then who says US rates can’t go back to zero?
–Reuters this morning reports that “Japan likely to cut super-long debt issuance to 17 year low.” Another article:
Major central banks have delivered interest rate cuts in 2025 at the fastest clip and largest scale since the financial crisis, while easing among policymakers in developing nations also accelerated.
Nine of the central banks overseeing the 10 most heavily traded currencies lowered their benchmark lending rates in 2025: the US Federal Reserve, the European Central Bank, and the Bank of England — but also Australia, New Zealand, Canada, Sweden, Norway and Switzerland.
–During COVID the US gov’t was handing out checks. Now the gov’t is going to be garnishing wages. Is there some reason to think that stocks are going to trade the same way? If pasted clip doesn’t appear, it says:
TRUMP ADMIN TO START SEIZING PAY OF DEFAULTED STUDENT LOAN BORROWERS IN JANUARY
GameStop Bros in reverse….
Expectations Muted
December 23, 2025
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–Yields edged a bit higher, led by shorter maturities given the 2y auction yesterday and 5s today. Two-yr ended just over 3.507% up 2.4, right at the lower end of the FF target range (3.5-3.75). The 5y is closer to the upper end of target, with wi ending at 3.723%. On the SOFR strip, reds were weakest with red pack -4.125. Front March, SFRH6 -1 at 9648.5, H7 -4 at 9686.5, H8 -3.5 at 9687 and H9 -2 at 9647.5.
–One-year calendar spreads are projecting a tame year. FFF6/FFF7 is -57.5. SFRH6/SFRH7 is -38. Sort of a 1 or 2 ease forecast despite a new Fed Chair. Miran yesterday said he wasn’t sure whether he would vote for 25 or 50 at the next meeting.
–Looking at forward spreads, SFRH7/H8 is +19.5, SFRH8/H9 is 19.5 as well. Europe synched up: ERH7/H8 +28, ERH8/H9 21.5. SFIH7/H8 21.5, SFIH8/H9 19.5. Forward yields up about 1/4% per year.
–Trade was light, but the TY covered call buyer executed another 50k buy: +50k TYH6 113.0c covered 112-135, 37d, pay 36 (1’45 straddle).
–Attached is Consumer Confidence and Expectations (in blue). U of Michigan Sentiment is at historic lows. These numbers are well above GFC lows (but also well below Trump’s first term).
I Got One More Silver Dollar
December 21, 2025
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And I got one more silver dollar
But I’m not gonna let ‘em catch me, no
Not gonna let ‘em catch the midnight rider
–Allman Brothers Band
Silver closed at an all-time high 67.15. From Liberation Day low in April of 28.35, the gain is 138%! Gold/silver ratio ended at 64.6, lowest since Covid in 2020 (64.05).2007. Though this has been a general area of support, I would note that the low in 2011 was 31.71. In that episode, silver ran from a low of 14.66 in Feb 2010 to 49.80 in April 2011, a gain of 240%. An equivalent gain of 240% off LibDay low would be 96.39. I don’t know where a barrel of WTI will be trading when we get there in H1, but currently an ounce of silver buys nearly 1.2 barrels using CLG6, up from 1 barrel as recently as two weeks ago.
An article on BBG (15-Dec) notes that Fannie/Freddie have added about $55b of retained mortgages to their portfolios since May…combined holdings $234b currently. From BBG, “…fueling speculation that they’re trying to push down lending rates and boost their profitability ahead of a potential public offering.”
Since mid-2022 Fed has been decreasing holdings of MBS, whittling about $16b per month, down $195b from Dec 2024 to Dec 2025. Fannie and Freddie aren’t quite plugging the gap from the Fed, but close. The Fed doesn’t hedge. Someone seems to be hedging now.
The buyer of ~30 delta covered calls in treasuries was back in this week, specifically buying TYH6 113.5c which settled 0’27, +0.32d vs 112-160. Open interest in the strike now 171k. Jan 113.5c still have 263k open. I noted two 50k clips this past week but I think there were three:
Dec 15, +50k TYH6 113.5c 31, 0.31d vs 112-115 (equiv 2’07 straddle price)
Dec 19, +50k TYH6 113.5c 30, 0.30d vs 112-185 (1’55)
In any case this trade will continue but has not boosted implied vol. As friend JC said, regarding FNMA and FMCC holdings, trades make sense from a convexity hedge standpoint; vol at relatively low levels. I would think the magnitude of the trade in March expiry will well exceed totals in Jan calls of approx 400k (which expire this Friday). [see vol chart in lower section]
In a thin upcoming holiday week, if an outlier event caused a rally through the 113.5 strike, trade might get unwieldy. TYF6 113.5c settled 1.
While mortgage risk appears to be effortlessly transferred to market makers, Blue Owl this week backed out of shouldering $10 billion of financing related to an Oracle/OpenAI data center. A signal that the market in general might start demanding more risk premium in terms of financing voracious capital expenditures related to AI? It starts small…
Bank of Japan hiked to 0.75% and the 10y JGB ended the week at a new high of 2.016%, equaling the level from August 1999. In 2006 it had just tested 2.00%. In any case, yen weakness ensued, with $/yen 157.75. In April 1990, $/yen peaked at 159.90. Since then, the high was 161.69, made in July 2024. The intervening low was 2011, 75.82. Though there are official protestations against the yen weakening too much, it looks like the market wants to test the 2024 high. In the past twelve months, the price of gold in yen has appreciated from 395k yen to 684k, a gain of 73%.
Silver and gold closing the year on highs. SPX and Nasdaq Comp are near highs for the year. Last week crude touched $55/bbl, at the low of this year, back to early 2021. One might conclude that it was a good year for bitcoin, but it’s actually lower on the year: last December it was around 92k and currently 88k, weighed down by levered derivatives. Strategy (MSTR) is down 64% from its high in July, and just off the low print of the year. (Another indication that risk capital is getting stingier at the margin).
2/10 treasury spread at new high for the year, 67 bps. However, MOVE index (treasury vol) is at the beat low. From a high of 140 in April, it’s now 59.4, the lowest since late 2021, before the tightening cycle ever started. The low in early 2021 was 42.5. Because I had recommended buying bond vol last week (oops), I am attaching a chart of US vol. It rarely gets lower than this. At a time when long-end yields in several jurisdictions are closing out the year at new highs (Japan, Germany, France, Sweden) it’s a bit surprising that treasury vol is at the bottom of the Chicago River in cement shoes. VIX is also at the low of the year at 14.91 (14.22 low in August).
As mentioned above, January treasury options expire on Friday. The CME is closing rates early on Wednesday but it’s a full session Friday. A lot of people will be out. Crazy outlier day? As a two-way lotto ticket, I like BUY USF6 114p for 3 (settled there vs 115-10) BUY TYF6 113.5c 1. Pay 4 for the strangle.
NOT A RECOMMENDATION. JUST SOMETHING TO WATCH.
A FEW OTHER THOUGHTS
Hammack this weekend echoed Williams, who said on Friday he has “…no sense of urgency to act further.” Waller said last week the Fed is 50-100 over neutral, but with the questionable CPI data of 2.7 yoy and current FF target 3.5-3.75, the argument for another 100 in cuts seems a bit dubious. Unless really bad stuff happens…
In San Francisco 130k residents were without power last night. Waymos couldn’t drive. No stop lights. (mercy!). They attribute this black-out to a fire at a power plant.
The CME lost connectivity after Thanksgiving. They identified a cooling issue at the data center.
Anyone else starting to feel like the explanations are a bit flimsy, no matter what the topic? There was a nuclear radiation accident. Homer spilled his coffee on the master console…
Well, ther’ ain’t no sense in it. A body might stump his toe, and take poison, and fall down the well, and break his neck, and bust his brains out, and somebody come along and ask what killed him, and some numskull up and say, ’Why, he stumped his TOE.’ Would ther’ be any sense in that? NO. And ther’ ain’t no sense in THIS, nuther. -Mark Twain, Huckleberry Finn
I think I’ll just keep an open mind as to cause/effect, no matter how they report it on the news. But here’s something really worrying. “Jim Beam, which is one of the largest makers of American whiskey in the world, is planning to shut down production in Happy Hollow in Clermont on Jan. 1 through 2026.” Time to start prepping.
https://www.kentucky.com/news/business/article313847580.html
| 12/12/2025 | 12/19/2025 | chg | ||
| UST 2Y | 352.6 | 348.3 | -4.3 | wi 347.5 |
| UST 5Y | 374.7 | 369.2 | -5.5 | wi 369.8 |
| UST 10Y | 419.2 | 414.9 | -4.3 | |
| UST 30Y | 485.7 | 482.6 | -3.1 | |
| GERM 2Y | 215.2 | 215.3 | 0.1 | |
| GERM 10Y | 285.6 | 289.4 | 3.8 | |
| JPN 20Y | 290.6 | 296.8 | 6.2 | |
| CHINA 10Y | 183.7 | 182.6 | -1.1 | |
| SOFR H6/H7 | -37.0 | -41.0 | -4.0 | |
| SOFR H7/H8 | 17.5 | 20.0 | 2.5 | |
| SOFR H8/H9 | 20.0 | 21.0 | 1.0 | |
| EUR | 117.42 | 117.10 | -0.32 | |
| CRUDE (CLG6) | 57.24 | 56.52 | -0.72 | |
| SPX | 6827.41 | 6834.50 | 7.09 | 0.1% |
| VIX | 15.74 | 14.91 | -0.83 | |
| MOVE | 69.25 | 59.41 | -9.84 | |
In: Eurodollar Options
