Debase
October 6, 2025
*****************
–Gold closing in on $4k with GCZ5 3963, up $54. Bitcoin $124k. In France Lecornu quit and in Japan, Sanae Takaichi is poised to become next prime minister…both contributing to the debasement trade. EURJPY at all-time high >175. Nikkei has exploded to a new high this morning, up 54% from April’s low and nearly 5% from Friday (new ath0. JGB 10y yield at new high over 1.68%, while US treasuries are also seeing higher yields going into this week’s auctions: 10y 4.152% (up 3.5 bps from Friday) and 30y 4.76% (up 4.8). The low yield in 10y JGB after the yen-carry scare of August 2024 was around 80 bps.
–Interestingly, in 1982 the Nikkei was around 6900, by 1989 it topped near 40000, a gain of around 33000. In 2012, NKY was around 8900 and is now near 50000, a gain >40000. Of course, the time frames and backgrounds aren’t similar, but the run has been wild.
–French stocks under pressure with BNP Paribas currently 74.38, down around 4.6%, lowest since June. France 5y CDS just over 42 bps, Italy 41 and Greece 43.
–Midcurve SOFR October options expire this week. 0QV5 9693.75^ settled 7.25 vs 9695.0 in SFRZ6. Looks to be 7.5 this morning ref 9693.5. Too cheap in my opinion. 0QV5 9700c around 1.5 currently.
The Man with The Golden… oh, I don’t know, earring? Or i-Phone. Maybe that’s better
October 5, 2025
*****************
Sanitization, shattered dreams, student loan garnishment, smaller economy.
First, in the clearest sign yet of the coming apocalypse, “Amazon has decided to remove guns from the key art used on all the James Bond films on Prime.”
Below is a link with the sad picture. Two words. Cracker Barrel.
https://x.com/WallStreetMav/status/1974223969596117086/photo/1
This is better:
Second, there’s a sobering story in the WSJ: LA’s Entertainment Economy Is Looking Like a Disaster Movie. The city’s creative middle class is hanging on by a thread.
Nearly 30% fewer movies and TV shows with budgets of at least $40 million began shooting in the U.S. in 2024 than in 2022, according to data firm ProdPro. The first three-quarters of this year were down another 13%.
The article cites a shift to social media and effects from AI substitution. From the article, Shooting the film in LA costs at least one-third more than doing it overseas…
Third, a couple of things mentioned by Danielle DiMartino Booth. The 150,000 Federal Employees that took the gov’t buyout program just received their last checks and benefits. Perhaps most have already transitioned to new jobs (given strong proficiency in Lotus 1-2-3 and fax machines), but it’s still a large number. Also, wage garnishments for delinquent student loan borrowers (270 days) should be starting this quarter. According to an article in Fortune, 2 million federal loan borrowers are at immediate risk of garnishment. “After 90 days, delinquency is reported to credit bureaus… and the latest gov’t and credit bureau data shows about 5.8 million borrowers are more than 90 days delinquent. That’s a whopping 31% of all student loan borrowers, according to TransUnion.”
I would note that at the start of October in 2018, Powell said the FF rate was “nowhere near neutral”. (The Fed was in a tightening cycle). Additionally, at the Sept 26, 2018 FOMC, the amount of QT was ratcheted up to $50b per month from $40b. In a move similar to this year’s Liberation Day sell-off, SPX topped at a then-record high on Oct 3 and fell 20% into year end. The last hike was in December, and the Fed was forced to shift to a neutral/ease mode. In a speech from Tuesday, Dallas Fed President Lorie Logan suggests the Fed is already near neutral (see comments below). We’re currently in an easing cycle, but could Logan’s remarks change perceptions and spark a re-play of Q4 2018?
Here’s another story that caught my eye because I thought the comments were amusing (Fark.com):
BlackRock private equity firm purchases northern Minnesota’s biggest power company, which totally won’t end up like JoAnn Fabrics, Kmart, Party City, Radio Shack, Sears, Toy R Us, Brookstone, Sports Authority, True Value, Payless Shoe Source, Red Lobster.
This is a story about insatiable demand for electricity. It’s not exactly new; the deal had been in the works but was just approved by MN regulators.
A BlackRock Sub (Global Infrastructure Partners) and Canada Pension Investment Board will buy Allete, parent of Minnesota Power in northern MN. Allete told regulators that MN Power’s ops won’t change and won’t affect electric rates, [which is, of course, bullshit]. Google wants to build a data center up there. Deal was $6.2 billion but they are providing $100m for ratepayer relief. (Why is there a relief fund if rates won’t change?)
Allete argued that BlackRock will have an easier time raising the money that Minnesota Power needs to comply with a state law requiring utilities to get 100% of their electricity from carbon-free sources by 2040. [Rates aren’t going to change but they need money to comply with new laws?]
This is, of course, all about data centers and AI. The “carbon-free sources” clause is likely going away. The Iron Range, north of Duluth with its open pit mines needed power as well. But those operations provided jobs.
******************************************************
Below are excerpts from Lorie Logan’s speech, ‘Why I’ll be cautious about further rate cuts’. To summarize, she is concerned that financial conditions (rising stocks) currently are supporting growth and consumption and risk feeding inflation, which is her primary focus. She believes further labor market slack is needed to reach the inflation target. Complete rebuke to Miran’s thesis.
… the Federal Reserve Board’s baseline methodology implies that current financial conditions will provide about a 1 percentage point boost to real GDP growth over the next year. More than half of the effect comes from higher equity valuations. This is largely because rising financial wealth tends to support aggregate consumption, and the last year alone saw an estimated increase in U.S.-held public equity wealth of more than $7 trillion. Of course, not everyone benefits equally or at all from increases in stock prices, and financial conditions are less supportive in certain sectors.
Monetary policy can ameliorate [labor market] slack by lowering the policy rate to support demand. But not all changes in economic activity represent changes in slack, and monetary policy can do little to change supply factors. Stimulating demand when it is already in balance with supply will create price pressures without sustainably adding to employment.
Research by my staff shows that a decline in immigration can also reduce demand, which offsets the reduced labor supply and leaves the economy smaller but overall balanced with little effect on inflation.
Adding in the 2 percent inflation target, those figures correspond to a neutral fed funds rate of 2.84 to 4.15 percent. Following the rate cut at the September FOMC meeting, the fed funds rate stands today at 4.13 percent, right at the top of that range.
The gradual increase in labor market slack to date is what I expected and what is necessary to bring inflation down. Non-housing services inflation, in particular, is tightly correlated with wage growth and, ultimately, labor market tightness. With non-housing-services inflation running above the rate consistent with overall 2-percent inflation, a modest further increase in labor market slack is likely necessary to finish restoring price stability.
Here’s the takeaway for me: A smaller economy, especially if paired with lower inflation, will be hard-pressed to service the fixed debt. Stocks vulnerable.
Fed minutes should be released Wednesday. U Mich Sentiment on Friday. Last at 55.1. There were two lower readings this year, April and May, both at 52.2. The lowest of the GFC in 2009 was 55.3. The low in 2022 as the Fed began its hiking cycle was 50.0.
OTHER THOUGHTS/ TRADES
Since 9/22, the Fed Effective rate has been 4.09. A 25 bp cut at the Oct 29 FOMC would imply 3.84% or a price of 9616.0. If one believes in Lorie Logan (no October ease), a sale in FFX5 at 9615 to 9614.5 is an easy conclusion. I would also note that BofA moved their forecast for an ease in October back to December. New sales of FFX5 occurred late last week. Open interest in the contract is 667k, +21k Friday.
January Fed Funds capture both Oct 29 and Dec 10 FOMCs (and three days associated with the Jan 28 FOMC). FFF6 settled 9638 or 3.62%, which currently indicates high odds of 25 bp cuts in both Oct and Dec.
Summary of TYZ covered call buys (not sure this is a complete list, added the 113c from last week):
Monday 9/22:
+50k TYZ5 114.0c covered 112-275, 31d price 33
+50k TYZ5 114.0c covered 112-255, 29d price 32
+25k TYZ5 114.0c covered 112-240, 28d price 31
Tuesday 9/23:
+50k TYZ5 114.0c covered 112-250, 29d price 31
Thursday 9/25:
+50k TYZ5 113.5c covered 112-215, 35d price 38
+50k TYZ5 113.5c covered 112-210, 35d price 38
+20k TYZ5 113.5c covered 112-090, 18d (only) price 32
Tuesday 9/30
+50k TYZ5 113.0c covered 112-190, 42d price 46
+25k TYZ5 113.0c covered 112-220, 45d, price 49
Friday’s settles: (Dec options expire 21-Nov)
TYZ5 112-215
TYZ5 113.0c 40, 249k in total Open Int
TYZ5 113.5c 29, 201k
TYZ5 114.0c 20, 280k
| 9/26/2025 | 10/3/2025 | chg | ||
| UST 2Y | 364.3 | 357.0 | -7.3 | |
| UST 5Y | 376.9 | 370.6 | -6.3 | |
| UST 10Y | 418.3 | 411.7 | -6.6 | wi 411.8 |
| UST 30Y | 476.3 | 471.2 | -5.1 | wi 471.7 |
| GERM 2Y | 202.7 | 201.5 | -1.2 | |
| GERM 10Y | 274.5 | 269.7 | -4.8 | |
| JPN 20Y | 262.2 | 261.1 | -1.1 | |
| CHINA 10Y | 187.4 | 185.9 | -1.5 | |
| SOFR Z5/Z6 | -59.5 | -62.0 | -2.5 | |
| SOFR Z6/Z7 | 9.5 | 11.0 | 1.5 | |
| SOFR Z7/Z8 | 18.0 | 19.0 | 1.0 | |
| EUR | 117.03 | 117.42 | 0.39 | |
| CRUDE (CLZ5) | 65.14 | 60.53 | -4.61 | |
| SPX | 6643.70 | 6715.79 | 72.09 | 1.1% |
| VIX | 15.29 | 16.65 | 1.36 | |
| MOVE | 74.38 | 69.53 | -4.85 | |
Base case is 25 bp cuts. There could be more
October 3, 2025
*****************
–Quiet session Thursday. Little change across SOFR strip with contracts out to 4 years unch’d to -0.5. Tens fell 1.7 bps to 4.087%. Premium continues to compress. As an example, TYZ5 settled +2.5/32 at 112-295. TYZ5 113c settled 49 which was DOWN 1/64 on the day (1’39 in the straddle, from 1’46 on Wednesday, 50 dte).
–There continues to be accumulation of SFRZ5 9650/9662.5cs for 1.25 to 1.5, >100k have traded in last couple of weeks in a faint echo of the SFRU5 9612.5/9625cs that was bought in size in the last cycle, only to expire worthless. Yesterday about 50k Z5 9625/9618.75/9612.5 put fly bought for 0.75. Settled 0.5 ref 9635.0. The 9650c is peak open interest at 805k; that strike requires perception of more than two additional 25 bp cuts, settled 3.25 vs 9635. The 9625p has 303k open, settled 4.25
–FFX5 settled -0.5 at 9615, near certainty of a 25 bp cut in October. FFX5/FFF6 calendar settled -24 (9615/9639) with that spread capturing the Dec FOMC. Bias remains: 25 bp cuts in the near term, with a chance of something bigger on an outlier (like an imminent US invasion of Venezuela…)
–CLZ5 made a new low, settled 60.16, lowest since the beginning of June. Once again, slight new recent low in 10y breakeven at 234.2 bps (treasury-tip).
From MNI:
“Let’s be clear: the jobs data scheduled to come out this Friday has undoubtedly been collected and the President must release it,” Warren, the top Democrat on the committee, said in a statement to CNN. “Without it, the Federal Reserve will not have the full picture it needs to make decisions this month about interest rates that will impact every family across the country.”
[US Gov’t facing mass firings. I think the Fed has a pretty full picture]
Doesn’t matter what language. In the US substitute ‘IPO market’ with ‘private credit’
“Good description of the IPO market turning into a wealth transfer mechanism from retail to encashing Promoters.”
In related news, BBG reports that UBS funds are heavily exposed to First Brands bankruptcy: “More than $500m is said to have been invested through various UBS funds.”
The Gov’t Closed. Open a HOOD account
October 2, 2025
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–Yields fell yesterday led by the front end as ADP came in weak at -32k with the previous month revised down to -3k. SFRM6, U6 and Z6 were strongest on the strip at +6.5 (9678, 9691.5 and 9697). Peak contract remains H7 at 9697.5, just over 3%. Slight steepener: the 2y yield fell 5.9 bps to 3.541% while 10s dropped 4.2 to 4.104%, just 1.4 bps away from what appears to be the new Fed Effective target of 4.09%. The ten year breakeven (treasury – tip) has been steady at around 240 bps, though I marked at a slight new low on the month at 235.6.
–November Fed Fund contract captures the Oct 29 FOMC. FFX5 settled 9615.5 or 3.845%. If EFFR is 4.09, an ease will mean 3.84. We’re there. And if the recent theme of 10s hugging EFFR remains intact, then sub-4% ten-year yield is around the corner.
–Despite the gov’t shutdown, vol is trending lower. I marked TYZ at 5.1 and USZ 9.9 with the former at the bottom of the range and the latter at a new recent low.
–Starting off this next part with the standard Fed disclaimer. These opinions are my own and probably don’t reflect the views of my employer.
Several items on BBG and X yesterday: First, BofA: “We see a variety of reasons that the S&P 500’s PE ratio today is not likely to mean revert to its long-term average, including the index’s shift toward asset-light business models, its higher quality of earnings, and its significantly lower leverage”. Sounds an awful lot like Irving Fisher: “..prices have reached what looks like a permanently high plateau.” Now that’s just stupid. Creating new narratives.
This next one makes a little more sense to me (BBG) More US banks will fail as the commercial real estate crash begins to work its way through to lenders’balance sheets, according to Joshua Pack, co-CEO at Fortress Investment Group LLC. Fortress has already acquired about $1.5 billion of performing office loans from financial institutions at prices ranging from 50 cents to 69 cents on the dollar.
So, CRE isn’t holding at a permanently high plateau; more like a K Mart blue-light special.
Here’s a dilly:
(BBG) Chief investment officers at Brown and Northwestern universities are turning to the secondary markets to tap into rising liquidity for their private assets, although they remain cautious over pricing.
“The flipside of a lot of retail money coming in and big evergreen funds means there is more liquidity in the secondary market,” [appropriately named] Falls said, referring to the influx of new investors in private equity, during a sluggish time for buyouts or stock market sales of unlisted assets. “You’ve got to be careful when pricing is erratic.” [like when assets are 50 cents to the dollar, see above]
Hmmm. Erratic pricing means liquidity is LOW.
Translation: We are stuck in private deals where the cash flows aren’t anything like what we thought they’d be. A blip in federal funding means we have to sell private assets. We have to take advantage of this window to unload. Retirement funds being led to the slaughter.
You Got a Friend
October 1, 2025
*****************
–What if they shut down the US Gov’t, and the treasury market didn’t care? Pre-shutdown TYZ5 settled 112-165. This morning, TYZ5 112-160. Probably not welcome news for the guy accumulating TYZ calls covered. Yesterday, bought 75k TYZ5 113c paid 46 for 50k vs 112-19, 42d and paid 49 for 25k vs 112-22 with 45d. Adds to last week: +175k TYZ5 114c delta neutral ~ 112-25. Then bought 125k TYZ5 113.5c ~ 112-21. Open interest in the three strikes, 113c 221k, 113.5c 191k and 114c 252k.
–Consumer Confidence came in low at 94.2 and the gov’t shutdown likely won’t help. From the Conference Board:
“Consumers’ assessment of business conditions was much less positive than in recent months, while their appraisal of current job availability fell for the ninth straight month to reach a new multiyear low.”
–FFX5 settled 9614.5, +1.5 on the day. Rate is 3.855 vs current 4.09 which is where EFFR has been. So 23.5 bps for the Oct 29 FOMC.
–In case missed from yesterday: (BBG) Millennium Mgmt is one of the biggest Wall Street names to get hit by the sudden unraveling of the auto-parts supplier First Brands Group. …loss is expected to total about $100 million.
How did you go bankrupt? Gradually and then suddenly.
–A couple of other large option plays: +6k TYZ5 113/1135/114/114.5c condor 4x4x4x3 pay 0 net prem for 6k. It’s the one extra 113/113.5/114c tree that can cause a sudden problem.
Late in the session, TYZ5 113/114/124c fly -3 paid 16k. Settles 43, 24, 1, so -4. This guy capped off the top. You know what it means, right? Going to 123.
–And, they’re giddy for gold and bitcoin again.
–Some amusing news from NYC:
https://futurism.com/artificial-intelligence/million-dollar-ai-campaign-defaced
And he got exactly that. Messages scrawled across the ads read “stop profiting off of loneliness,” “AI wouldn’t care if you lived or died,” “go make real friends,” “this is surveillance,” and “AI will promote suicide when prompted.”
In a scathing review from Wired, two journalists found Friend snarky, sarcastic, unhelpful, as well as surprisinglyargumentative and holier-than-thou.
I certainly don’t need AI for that!
Wake up call
September 30, 2025
*********************
–End of month and quarter, with gov’t shutdown looming. Hegseth and Trump mass meeting with the military’s top brass is also today.
–New recent low in 5/30 yesterday at 96.7 (3.628/4.706). Through the month of September, 5/30 has steadily declined from a high of 123.6 on September 2. Similarly, 2/10 was 61.7 on 2-Sept and is now 51.3. Treasury curve flattening has corresponded to weakness in red SOFR contracts. On 8-Sept the peak contract SFRH7 settled at a high of 9716, but the ‘sell the news’ move post-FOMC left SFRH7 with a 9689 settle yesterday, and a slight new high in SFRH6/H7 one-year calendar at -41.5 (9647.5/9689). Somewhat surprising that forward spreads are reflecting lessening odds of easing, even as Powell’s term ends.
On the other hand, there are still option plays going through for lower rates. For example, buyer of 20k SFRH7 9650/9668.75/9687.5/9706.25c condor for 3.75 to 4.0. (3.75s). Sweet spot is between middle two strikes, consistent with a target of ~3.25%, 100 lower than current.
–Tens ended yesterday -4.2 bps at 4.142%, just 5 away from what appears to be new EFFR of 4.09. TYZ5 112-165s.
–JOLTS and Consumer Confidence…expected 7200 from 7181 and 96.0 from 97.4.
–In France, Villeroy said the country needs to deal with its “number one problem now: debt and deficit” as the country risks being “increasingly suffocated by debt that’s getting heavier and is more and more expensive”.
In: Eurodollar Options
The First shall be last
Sept 29, 2025
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–I’m not usually a big fan of ‘AI summaries’ but I like the wording of BBG’s regarding the failure of First Brands: “The direction of travel is troubling, with private asset managers pushing to get more money from ordinary folks’ savings and non-banks borrowing increasing amounts from banks, inviting fresh horrors and strain for more borrowers.”
–First Brands is an auto parts supplier with assets between $1 and $10 billion. Not much more than a sneeze in the capital markets, but the BBG article mentions excessive leverage. Of course, CarMax (KMX) earnings and stock price plunge last week is a reminder of auto troubles. Lower in the piece: “The share of [US consumer] credit card balances more than 90 days late exceeds 12%, way ahead of 2020’s peak and not far off 2010’s 13.7%…” Didn’t Trump and Bernie want to cap credit card interest rates at 10%?
https://blinks.bloomberg.com/news/stories/T3CG60GPFI8Z
–Gov’t shutdown looms. Sev’l Fed speakers today: Waller on payments at 7:30, Hammack (still worried about inflation) at 8. Musalem and Williams (?) at 1:30.
–Crude oil pulling back from Friday;’s strength, CLZ5 currently down $1 at 64.14. Stocks and bonds merrily higher. Gold, the new central bank lynchpin of the global monetary structure is, of course, making a new all-time high with GCZ5 3838.
–Chart attached is the 10y treasury vs EFFR. I had noted when EFFR was 4.33 that tens weren’t deviating from that level all that much. Now EFFR is 4.08 or 4.09. Friday’s 4.183% (+1.1 on the day) offers some positive carry. Yield is 4.144% this morning.
In: Eurodollar Options
The Anguish of Central Banking… the ghost of Arthur Burns is returning to haunt us
September 28, 2025 – Weekly Comment
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Arthur Burns was the Fed Chair from 1970 to 1978. Fifty years ago. In September of 1979, he gave an address titled The Anguish of Central Banking. Here’s the link:
https://fraser.stlouisfed.org/files/docs/publications/FRB/pages/1985-1989/32252_1985-1989.pdf
It’s well worth reading due to today’s parallels. I have excerpted several passages that are at the end of this note, but in the interest of brevity I am going to summarize the main points. With respect to the persistent inflation of his tenure, Burns, in part, points to a transformation in the role of gov’t “…to solve problems and relieve hardships—not only for society at large but also for troubled industries, regions, occupations, or social groups—a great and growing body of problems and hardships became candidates for governmental solution.” He deflects criticism of the Fed by noting that sharp monetary restraint to fight inflation would be “frustrating the will of Congress.”
As the Federal Reserve, for example, kept testing and probing the limits of its freedom to undernourish the inflation, it repeatedly evoked violent criticism from both the Executive Branch and the Congress and therefore had to devote much of its energy to warding off legislation that could destroy any hope of ending inflation.
My conclusion that it is illusory to expect central banks to put an end to the inflation that now afflicts the industrial democracies does not mean that central banks are incapable of stabilizing actions; it simply means that their practical capacity for curbing an inflation that is continually driven by political forces is very limited.
We’re going to be yearning for the steady hand of Jerome Powell in the years to come. In my opinion, the overwhelming risk is that the next Fed will spark huge inflationary fires with the tacit approval of a Congress that knows no restraint, and an executive branch that skirts the rules and indulges in fanciful policy pronouncements with little regard for consequences, inflationary or otherwise.
As we run into another budget wall, both sides in Congress simply want more. New polling says that Gen Z and Millennials want socialism. (According to a COMPLETELY UNBIASED poll funded by Democratic Socialists of America). The 2% inflation goal is in the rearview mirror. It’s no coincidence that the last time gold soared to spectacular new highs was in the late 1970’s to 1980.
Odds of a government shutdown appear to be receding on betting sites, though it would probably be best if the 400 generals summoned by Defense Sec’y Hegseth bought round-trip tickets so they don’t get stuck in Quantico. Maybe they’re being deployed to Portland. Or Venezuela. If the gov’t does shut down at the end of Tuesday then Friday’s employment data will likely not be released.
In terms of a bond market reflecting fiscal stress, France 10y made a new high for the move last week at 3.60% (high since 2011). The spread to Germany had been 45 to 60 bps from 2022 to Q1 2024, but ended Friday above 82 bps (high this year according to BBG is 86.3). Chance of ECB buying French bonds to stabilize spreads?
From an article by Lance Roberts, “The clearest sign of [US] economic deceleration is the Conference Board’s Leading Economic Index (LEI), which has declined for 17 consecutive months. That’s not a rounding error; that’s the longest losing streak since the 2008 financial crisis. The LEI includes forward-looking components like new orders, jobless claims, building permits, and consumer expectations.” [link below] If the Leading Index is correctly foreshadowing a recession, then the Fed will almost certainly restart QE. The endgame appears to be a plan to repress US rates while letting inflation run hot. In the Biden years the idea was fiscal dominance, but now the economic hand-off is to AI investment dominance (with an equally uncertain payoff).
Credit market risks seem to be non-existent. BBB/Baa spread to tens is less than 100 bps, at the lows of the past five years. Of course, in 2007 the spread was also quite low at 120 bps, but then exploded to nearly 600 bps by the start of 2009. Stock prices of the TBTF banks are making new highs: JPM, BAC, WFC, C, MS, GS. I would put BLK in this category as well. However, some of the largest players in private equity are lagging. For example, KKR is well below the January high, and dropped 5.5% on Wednesday. Same with Apollo (APO). Blackstone (BX) looks better but still seems to have heavy resistance around January highs. Blue Owl (OWL) has been sideways since May and dropped 6.6% on Wednesday. Could the divergence between TBTF and some of the private equity shops give an early warning of credit risks? Not certain but watching. Along the same lines, bitcoin is weakening relative to gold, and MSTR last week traded at the lowest level since mid-April. I perceive gold to be more of a central bank asset, while bitcoin is more speculative with greater embedded leverage. Below is a chart of Bitcoin/gold (XBT/XAU). Trendline off the low of 2023 appears vulnerable.
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Sort of an amusing interview with Cem Karsan of Kai Volatility and a guy named Ben Cahn of stocktwits. Karsan is talking about current overvaluation and comparing it to 2000. (4:09) “The amount of pain in the tech bubble…Nasdaq lost 92% of its value peak to trough. 98% of tech start-ups went bankrupt.” The interviewer Ben appears as if he just can’t process the thought and responds incredulously with, “I can’t imagine that happening again today. It feels like the world will be over.” To which Cem replies simply, “It will.”
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This past week was dominated by huge buying of TY calls covered. Over $150m in premium.
Monday:
+50k TYZ5 114.0c covered 112-275, 31d price 33
+50k TYZ5 114.0c covered 112-255, 29d price 32
+25k TYZ5 114.0c covered 112-240, 28d price 31
Tuesday:
+50k TYZ5 114.0c covered 112-250, 29d price 31
Thursday:
+50k TYZ5 113.5c covered 112-215, 35d price 38
+50k TYZ5 113.5c covered 112-210, 35d price 38
+20k TYZ5 113.5c covered 112-090, 18d (only) price 32
Friday’s settles: Dec options expire 21-Nov.
TYZ5 112-085
TYZ5 113.5c 30, 31d, Open Int 166k
TYZ5 114.0c 23, 24d, Open Int 233k
I marked Friday TYX vol at 5.1 and TYZ at 5.4 (took out weekend time value). These levels are near the year’s low despite the huge call buyer. Liberation Day vol was 8 to 8.5.
One other interesting trade from Friday: +50k US wk1 Tuesday (10/7 expiry) 109p, 1 paid 50k. On BBG symbol is ULIV25P1. Oct 7 is the anniversary of the attack on Israel. I don’t believe I have seen any large Tuesday option trades aside from this one.
OTHER THOUGHTS/ TRADES
Rate futures clearly expect easing, though the magnitude and timing has been pared back in the past week. For example, the high settle of SFRZ5 this month has been 9639 on 9/11, but Friday’s settle was 9627.5. The peak SOFR contract, SFRH7 posted a high settle for this month and calendar year of 9716 on 8-Sept. Friday it ended over ¼% lower at 9688. SFRZ5/Z6 one-year calendar was -80 one month ago, and -59.5 on Friday (9627.5/9687).
My bias is that events may cause the Fed to ease harder and faster than is currently expected. I believe that will cause the forward part of the curve to (re)steepen.
As mentioned during the week, some are thinking that the end of Powell’s term in May will be immediately followed by BIG easing. Therefore, calendars like SFRH6/M6 and H6/U6 have been of interest. However, these spreads have actually rallied over the month. SFRH6/U6 settled -45 on 29-Aug and -35 on Friday (9645.5/9680.5). When the Fed is expected to ease it’s not uncommon to see a THREE-MO spread near -50. Fed comments post-FOMC and some decent data have trimmed easing expectations. I would think H6/U6 could easily trade below -50 in October. Of course, this would be associated with a move to much higher prices; a similar expression using December midcurves would be something like pay 4.0 for 0QZ5 9712.5/9737.5cs for 4.0 (settle 4.25, 7.5 and 3.25).
| 9/19/2025 | 9/26/2025 | chg | ||
| UST 2Y | 357.8 | 364.3 | 6.5 | |
| UST 5Y | 368.6 | 376.9 | 8.3 | |
| UST 10Y | 413.3 | 418.3 | 5.0 | |
| UST 30Y | 475.3 | 476.3 | 1.0 | |
| GERM 2Y | 201.9 | 202.7 | 0.8 | |
| GERM 10Y | 274.6 | 274.5 | -0.1 | |
| JPN 20Y | 262.9 | 262.2 | -0.7 | |
| CHINA 10Y | 179.2 | 187.4 | 8.2 | |
| SOFR Z5/Z6 | -64.5 | -59.5 | 5.0 | |
| SOFR Z6/Z7 | 10.5 | 9.5 | -1.0 | |
| SOFR Z7/Z8 | 19.5 | 18.0 | -1.5 | |
| EUR | 117.46 | 117.03 | -0.43 | |
| CRUDE (CLZ5) | 61.98 | 65.14 | 3.16 | |
| SPX | 6664.36 | 6643.70 | -20.66 | -0.3% |
| VIX | 15.45 | 15.29 | -0.16 | |
| MOVE | 72.51 | 74.38 | 1.87 | |
https://realinvestmentadvice.com/resources/blog/slowdown-signals-are-leading-indicators-flashing-red
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EXCERPTS FROM ARTHUR BURNS’ 1979 SPEECH (emphasis added)
I believe that such analyses overlook a more fundamental factor: the persistent inflationary bias that has emerged from the philosophic and political currents that have been transforming economic life in the United States and elsewhere since the 1930s. The essence of the unique inflation of our times and the reason central bankers have been ineffective in dealing with it can be understood only in terms of those currents of thought and the political environment they have created.
And beyond these innovative actions, the federal government greatly extended the range of its regulatory activities. It intervened massively in the securities market, in banking, in the public utilities industry, in the housing market, and in the farm sector; and it gave labor unions broad new rights and powers.
Once it was established that the key function of government was to solve problems and relieve hardships—not only for society at large but also for troubled industries, regions, occupations, or social groups—a great and growing body of problems and hardships became candidates for governmental solution. New techniques for bringing pressure on the Congress— and also on the state legislatures and other elected officials—were developed, refined, and exploited. The Congress responded by pouring out a broad stream of measures that involved government spending, special tax relief, or regulations mandating private spending.
Traditional ways of protecting particular groups against competition— such as raising farm price supports, increasing minimum wages, and imposing import quotas— did not lose their appeal as inflation kept soaring.
Viewed in the abstract, the Federal Reserve System had the power to abort the inflation at its incipient stage fifteen years ago or at any later point, and it has the power to end it today. At any time within that period, it could have restricted the money supply and created sufficient strains in financial and industrial markets to terminate inflation with little delay. It did not do so because the Federal Reserve was itself caught up in the philosophic and political currents that were transforming American life and culture.
If the Federal Reserve then sought to create a monetary environment that fell seriously short of accommodating the upward pressures on prices that were being released or reinforced by governmental action, severe difficulties could be quickly produced in the economy. Not only that, the Federal Reserve would be frustrating the will of the Congress, to which it was responsible—a Congress that was intent on providing additional services to the electorate and on assuring that jobs and incomes were maintained, particularly in the short run.
As the Federal Reserve, for example, kept testing and probing the limits of its freedom to undernourish the inflation, it repeatedly evoked violent criticism from both the Executive Branch and the Congress and therefore had to devote much of its energy to warding off legislation that could destroy any hope of ending inflation. This testing process necessarily involved political judgments, and the Federal Reserve may at times have overestimated the risks attaching to additional monetary restraint.
My conclusion that it is illusory to expect central banks to put an end to the inflation that now afflicts the industrial democracies does not mean that central banks are incapable of stabilizing actions; it simply means that their practical capacity for curbing an inflation that is continually driven by political forces is very limited.
In: Eurodollar Options
Stripping out an ease
September 26, 2025
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–In a simplistic sense, pre-FOMC the Fed Effective Rate (EFFR) was 4.33%. If the Fed cut 25 bps each in Sept, Oct and Dec, that would be a cumulative 75 bps, equating to EFFR of 3.58 or a price of 9642.0. The high in SFRZ5 on Sept 17, Fed Day, was 9642.0. Right there. Yesterday SFRZ5 settled 9626.0 as data remains solid (upward revision of Q2 GDP, lower Jobless Claims, etc). SFRH6 traded as high as 9667.5 on Sept 17, a spread of 1/4% to the December contract high. However, yesterday, SFRH6 settled 9643.0. Essentially the market is stripping out an ease which had been priced going into the FOMC.
–New high in SFRZ5/Z6 one-year calendar at -60 (9626, -5.5/9686, -8.5). From mid-July to early Sept, the (then front) SFRU5/SFRU6 spread was -90 to -105. Of course, one ease in that period, last week’s, actually occurred.
–New lows in some of the far SOFR calendars as the curve flattened due to signs of a less accommodative Fed. For example, SFRZ7/SFRZ8 settled +17 (9679/9662) from a recent high of 24. Similarly, 5/30 treasury spread ended at 98.3, down 6.0 bps as weakness was concentrated on front end (recent high 123). 5y +5.3 to 3.767, 30y -0.8 to 4.75. Tens rose 2.7 bps to 4.172%.
–Relentless buying of TYZ5 calls. Yesterday added 120k buys of 113.5c vs futures. TYZ5 113.5c settled 32 with 32d vs 112-205. TYZ 114c (long 175k) settled 24 with 25d. Details at bottom.
–Catalysts for wild moves are bubbling everywhere. Threats of downing jets, a gov’t shutdown showdown where the admin is threatening massive layoffs, the Pentagon stripping layers of high-level management. Cats sleeping with dogs.
–The panic isn’t evident in VIX though it has firmed somewhat to 16.75.
–KMX (CarMax) absolutely crushed, down around 19% yesterday. BBG cites “Used car stress” on the earnings call. WSJ says ‘Auto Industry is Flashing a Warning Sign’. TriColor bankruptcy, Ford offering incentives on F150 to lure less credit-worthy borrowers. Subprime auto delinquency rates punching higher.
–News today includes PCE Prices, expected 0.3 with Core 0.2. Year/year expected 2.7 from 2.6 and Core 2.9 from 2.9.
Summary of TY covered call buyer.
This morning (Thursday):
+50k TYZ5 113.5c covered 112-215, 35d price 38
+50k TYZ5 113.5c covered 112-210, 35d price 38
and later in session:
+20k TYZ5 113.5c covered 112-090, 18d (only) price 32
Tuesday:
+50k TYZ5 114.0c covered 112-250, 29d price 31
Monday:
+50k TYZ5 114.0c covered 112-275, 31d price 33
+50k TYZ5 114.0c covered 112-255, 29d price 32
+25k TYZ5 114.0c covered 112-240, 28d price 31
post futures-settlement
0QU6 9587.5p vs SFRU6 9684, 14d, 6.5 paid 40k…nearly 100 bps otm. 351 dte
In: Eurodollar Options
Shaking out weak longs
September 25, 2025
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–In the wake of the FOMC, rate futures have gently pulled back, with inflation concerns being voiced by several officials. For example, the peak SOFR contract, SFRH7, hit a high of 9712 the day prior to the Fed, but settled 9696 yesterday, down 3.5. TYZ5 posted a high settle of 113-21 on 9/11, but was a point lower yesterday at 112-205. I’ve attached a chart of the 10y yield; in my opinion it’s going to be hard for tens to get through 4.17 to 4.19. The market has simply tamped back odds of further easing and shaken out some longs before its next move into the 3 handle.
–In terms of short-end calendar spreads, FFV5/FFV6 settled almost exactly at -100 (9592.5/9693.0). Front October has pegged the new EFFR, while one-year forward currently prices 4 more quarter point cuts. However, SFRZ5/Z6 settled at a new recent high of -63.0 (9631.5, -1.5/9694.5, -3.0). The implication is that easing will be ‘front-loaded’. Yesterday I mentioned SFRH6/M6 3-month calendar as a spread to watch since it will bracket a new Fed Chair (and possible outsized easing), but that too, settled at a new recent high of just -22 (9651.5/9673.5). Not even ONE ease!
–SFRH6/SFRU6 six-month calendar settled -36 (9651.5/9687.5). The six-month generic spread on BBG (SFR3 vs SFR5) was around -55 post-Liberation Day.
–Quiet Wednesday…a few trades of note:
SFRZ5 9625/9643.75/9662.5c fly 20k sold 7.25 to 7.0. Settled 6.75
SFRX5 9687.5/9712.5cs 0.25 paid 15k
0QU 9800/9825c 1×2 25k sold 1.25 to 1.00, settle 5.25/2.0 or 1.25
The Nov call spread is, of course, a lotto ticket for something bad happening. Covers the 29-Oct FOMC and NFP. I’d prefer to just pay 0.5 for the lower strike (SFRX5 9675 thru 9693 strikes all settled 0.5).
Buyer 15k TYX5 112/111ps vs 114c for 1.
Put spread settled 15 and 114c settled 12, so 3 for ps. The BIG position is long TYZ5 114 calls (175k).
–Jobless Claims expected 234k with Continuing 1933. Existing Home Sales -1.4% expected.
In: Eurodollar Options
