Slower easing?

September 24, 2025
*********************

–Powell’s speech suggested caution with respect to the easing cycle, yet yields edged slightly lower.  SOFR contracts out to the greens were +1.0 to +2.5.  Peak contract SFRH7 settled 9699.5, +1.5, essentially at 3%.  Tens eased 2.1 bps to 4.118%, hugging the new Fed Effective rate.  Worth noting is that EFFR never deviated from 4.33 over the previous period, but Monday’s effective was 4.09, up from 4.08, something to keep an eye on with respect to funding pressure. 

From Powell’s speech:

But uncertainty around the path of inflation remains high. We will carefully assess and manage the risk of higher and more persistent inflation. We will make sure that this one-time increase in prices does not become an ongoing inflation problem.

Two-sided risks mean that there is no risk-free path. If we ease too aggressively, we could leave the inflation job unfinished and need to reverse course later to fully restore 2 percent inflation. If we maintain restrictive policy too long, the labor market could soften unnecessarily. When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate.

A newsflash bullet point helped push stocks lower: *POWELL: EQUITY PRICES ARE FAIRLY HIGHLY VALUED

–Another clip of 50k TYZ5 114c bought vs futures yesterday, bringing the two day total to 175k.  Settled 32 with 32 delta, 229k open interest.  SOFR option volume was light, but new buyer of 30k SFRH6 9725c for 3.0; settled 3 vs 9654. 

–Related to the end of Powell’s term, there’s been interest in the SFRH6/SFRM6 calendar, on the premise that large cuts could occur as soon as Powell is out (as per Miran, Bowman).  While this spread traded as low as -27.5, yesterday’s settle was at the recent high of -22.5 (9654/9676.5).  SFRH6/U6 settled -37 (9654/9691).  Really tight given the environment.  In some ways, Powell’s comments suggest less easing over the near term, which might mean BIG easing when he’s out, yet the spreads aren’t really reflecting that.  I would probably be more inclined to pay 9.5 for SFRU6 9762.5c (71.5 otm) than 3.0 for SFRH6 9725c (71 otm). 

–Where SHOULD financing rates be?  I don’t know, but this headline from WSJ hints at the need for a little grease:
FORD COURTS RISKIER BORROWERS WITH LOWER RATES FOR F150.

I saw 2.9% for 66 months…which is 80 bps below the current 5yr (5s being auctioned today). 

–Interesting Doomberg yesterday notes that China’s efforts for AI and chip technology independence are paying off:

It is no exaggeration to say that these three pillars—NVIDIA’s designs, TSMC’s foundry expertise, and ASML’s near monopoly on the most advanced lithography machines—form the foundation of the current stock market boom.

But the punchline is a somber warning:

If history is any guide, China will not only soon catch up with the West’s three main chip-industry leaders but will eventually surpass them by a wide margin.
–NVDA 178.43 yesterday, -2.8%.

Powell speech today

September 23, 2025
***********************
–Fed speeches today from Bowman at 9 and Powell at 12:30.  Yesterday Miran gave a speech indicating the neutral rate could be around zero, due to the reversal in immigration and fiscal policies:

“R* reflects the balance of saving and investment in an economy and it evolves over time with demographics, productivity, fiscal policy, and other factors. It is my view that previously high immigration rates and large fiscally driven decreases in net national saving, both of which raise neutral rates, were insufficiently accounted for in previous estimates of neutral rates. Monetary policy was not as tight as many believed. That same effect may be taking place today, but in the opposite direction.”

Contrasting Miran: BOSTIC SEES LITTLE REASON TO CUT RATES FURTHER FOR NOW: WSJ

–Big trade from yesterday was a new buyer of 125k TYZ 114.0c: paid 32 covered 112-255, 29d, 50k.  Paid 33 covered 112-275 for 50k, 31d, and 31 cov 112-24, 25k, 28d.  Settled 30 vs 112-225.  This trade most likely is a replacement for expiring October 113, 113.5. 114 calls which had been bought delta neutral.  Oct options expire Friday; TYV 113c settled 7 with 28d and have 196k open, which is peak OI strike in Oct calls.  TY vol remains low with TYZ 5.1.

–Yields had little net change with flatter bias.  2s +1.9 bps to 3.597 in front of today’s auction (followed by 5s and 7s).  Tens +0.6 to 4.139%.  In SOFR H6, M6. U6 were weakest at -3 (9653.5, 9676, 9690). Blues (4th year frd) were unch’d.  

–Yesterday Argentina received a lifeline: US Is Ready to Do What’s Needed to Support Argentina: Bessent.  

Another admin overreach.  

–Gold and NVDA continue to power higher.  Gold mkt cap now around $25T while NVDA is $4.47T

–Cattle also surging.  LCZ5 208 in early July, now 240. StoneX’s Arlan Suderman cites a case of New World Screwworm just south of the US border (I thought it was a new band!) and mentions a ‘protein deficit’ in the US.  On the other hand, I’ve been seeing reports of harsh conditions affecting US farmers (thx DK) with low crop prices and difficulties servicing debt on equipment.  Farm Aid type stuff.  Most recent data from the KC Fed on Farmland Values shows annual changes in land prices: -2.1% in Q1 2025 and -1.5% in Q2 (non-Irrigated) and -4.0, -3.0% (Irrigated) vs latest +4.2% yoy in Q2 for Ranchland.  

Gold new ATH as bitcoin falters

Sept 22, 2025
**************
–Bitcoin down to 112,500 this morning; on the Sept futures contract it prints -2770.  However gold is making a new all-time-high with GCZ5 up $52 at 3758.  Rate futures little changed after Friday’s pullback.  On Friday the SOFR curve was slightly steeper with SFRZ5 -0.5 to 9634.5, Z6 -1.5 to 9699, Z7 -2.0 to 9688.5, and Z8 -3.0 to 9664.5.  Slight new high in SFRZ5/Z6 one-year calendar at -64.5 (recent low on 28-Aug was -80).  I marked red/gold pack spread at 54.625 (9697.75/9643.125).  Up nearly 3 bps from Thursday.  My opinion is that this spread should be closer to 75 bps, but the possibility of Treasury manipulation at the long end is likely tamping down on long curve trades. 

–Small pullback in equities with continued issues regarding H1B visas.  This from Politico on Friday:

https://www.politico.com/news/2025/09/20/donald-trump-h1b-visas-overhaul-00574345

–‘Massive cyberattack’ (RTRS) that grounded air traffic in Europe over the weekend is also a concern.

–Heavyweight Fed speakers early this week.  Miran at noon today.  Bowman tomorrow at 9 EST.  Powell at 12:30. 

Eat another breadstick. They’re FREE!

September 19, 2025
*********************

–Continued unwind of trades predicated on a more dovish Fed.  Ten year yield +3.2 bps at 4.102%.  Peak SOFR contract, SFRH7 was -3.5 at 9701.5, right around 3%. (High settle Tuesday 9712)  Near SOFR 1-yr calendars made new recent highs, for example, SFRZ5/Z6 which is now the lowest, settled -65.5, +2.5 on the day (9635/9700.5).  This spread had been as low as -80.  SFRH6/H7 settled -43.0, +2 on the day, against a recent low of -57.5.  These spreads suggest that forward easing will be a slow-moving process.  FFV5 settled 9593.0 or 4.07% compared to new EFFR of4.08%.   FFV6 settled 9700.5 or 2.995%, indicating another 100 bps of easing over the next year. 

–There was an early buyer of SFRZ5 9650c for 2.75, settled 3.25 vs SFRZ5 9635.0 (-1.0).  Great long for those who need upside insurance in case the Fed is forced into aggressive easing for something crazy, and there are a lot of candidates.  Taking advantage of long liquidation currently underway – SFRZ5 open interest fell 64k.  Vol has also cheapened. 

–BOJ held rates but announced it is paring back holdings of ETFs and REITs.  Nikkei was down about 0.6%.  

–‘When you’re here, you’re family.’ In another crack of the American consumer, Olive Garden (unlimited breadsticks) parent Darden released results and the stock fell 7.7%.  Full year comp revenue expected +2.5% to +3.5% for 2026.  (Holding steady with inflation).   

–Chgo Fed Nat’l Activity today.  I am taking off early today.  No weekend or Monday missive.

Fed Cuts 25 bps. yay

September 18, 2025
**********************

–Fed cut 25 as expected, citing the labor side of the dual mandate.  However, subsequent price action indicated hopes for a more dovish press conference.  At one point Powell said ‘you can think of this 25 bp ease as a risk management cut’.  Not exactly a green light signaling a string of forward eases.  At futures settles SFRH’27 thru SFRH’31 were down 7 to 8.5.  SFRH7 is still peak on the strip, settling 9705.0.  Fives were weakest in treasuries, +6.3 in yield to 3.646%.  I had mentioned previously that tens seemed magnetically drawn to the EFFR of 4.33%.  New EFFR should be 4.08%, and tens ended at 4.07%, down 4.6 bps on the day.  5/30 treasury spread made a new low of 102 bps, fully 20 off the high posted at the start of September.

–MIran was the only dissenter, favoring 50.  I see that as a victory for Powell, and applaud Waller for sticking with the committee.  Sure, it probably takes him out of the running for Fed Chair, but who wants the constant hassle?  One journalist noted that for the past several years the Fed’s projections have always had the 2% inflation goal at least two years in the future.  I randomly checked June 2023 and the 2.0 projection was in the ‘Longer Run’, not 2025.  But by Sept 2023, the 2.0 target was listed at end 2026, where it stayed until Sept 2024.  Then in Dec 2024, the end of 2026 was revised higher to 2.1% and the 2.0 target was ‘Longer Run’.  Always out there in the future… until eventually that target is simply abandoned.  

–Early exit seller of 100k 0QZ5 9700/9725cs at 10 (some at 9.75) ref SFRZ6 9707.  Futures settled 9704 and the call spread settled 9.5.  This trade had been carried for a long time, initially starting as a midcurve June call spread that was rolled into 0QU5 9700/9725 and then rolled into 0QZ 9700/9725 for 1.  SOFR vol was hit hard as hedges for a more proactive Fed were exited.  For example, SFRZ5 settled unch’d at 9636, and the 9637.5 straddle went from 21 on Tuesday to 18 settle.  SFRH6 settled -1.5 at 9660, and the 9662.5^ fell from 37.5 to 35.0.

–There are always bankruptcies occurring, but this opening line from theweek.com (Joel Mathis) is perhaps notable:
“Nearly two decades ago, the collapse of the subprime home loan market sparked the Great Recession and devastated the economy. There are echoes of that history in the recent collapse of Tricolor Holdings, a subprime auto lender.”  
Tricolor.  From being in the pink to just plain red.  

–Jobless Claims and Philly Fed Mfg today, expected 240k and +2.3 from -0.3

Things don’t change that much

September 17, 2025
*********************

–Fed day.  Small chance of 50.  Likely to be three dissents for 50.  

–But rather than go into detail on that, here’s something actually worth watching! A classic clip from Three Days of the Condor with Robert Redford.  Joe Turner (Redford) works for the CIA in NY at a front called the American Literary Historical Society.  “He reads books and foreign publications to identify potential security threats.”  Great movie.  The technology changes, but the games don’t. 

–A few large trades:

TYV5 115c 2 paid 25k (closing)
TUV 104.375p 5 paid 20k (new)
TYV5 113p 12 for 29k (new, settled 10)

0QH6 9737.5/9775c 1×2 8.5 to 8.75 for 50k.  8.5s, new.
SFRZ5 9631.25/9650c 1×2 2.25 to 2.5 paid 15k.  2.25s, new

–Good 20y auction 4.613%.

–A couple of days ago BBG reported Pimco was scaling out of steepeners, in case of ‘surprises’.

Yesterday BBG story cites Pimco on hypothetical “Operation Mortgage Twist”

In fact, reinvesting mortgages “could deliver as much bang for the buck as a 100 bp cut to the federal funds rate” 

–Don’t need to be a CIA operative to know what’s coming next.

Retail Sales. I guess they’re not buying paint.

September 16, 2025
**********************
–On April 29, Harley Bassman, Convexity Maven, put out a piece “Chekhov’s Gun” which a friend forwarded to me.  This was shortly after the ‘Liberation Day’ announcement and huge rips in VIX and MOVE.  On page 4 he says, “I would propose that these jumps in the MOVE and the VIX are not short-term blips that will quickly resolve, but rather they may be permanent, or at least until the end of the Trump Presidency in 2029.”

Those blips did eventually resolve much lower as we saw last week.  Perhaps a hopeful sign as it relates to current social turmoil. However, it’s also probably a good idea to remember in times of low vol that Chekhov’s loaded rifle is still on the financial stage, it just hasn’t been used yet.

https://www.convexitymaven.com/wp-content/uploads/2025/04/Convexity-Maven-Chekhovs-Gun.pdf

–Yesterday featured deflation regarding the idea of a 50 bp cut tomorrow, with a bit of pressure on near-term SOFR contracts relative to deferred.  For example, SFRZ5 settled -2 bps at 9634.5, while SFRZ6 settled +2.0 at 9706.5 and Z7 settled +2.5 at 9699.5.  Over the weekend, I suggested buying SFRZ5 9687.5/9712.5cs for 0.5 as a ‘disaster lotto ticket’.  Yesterday, there was a buyer of 50k Z5 9675/9700cs for 1.0 and buyer of 20k 9668.75/ 9700cs for 1.5.  In futures there was a new buyer of 70k SFRU6/SFRH7 six-month calendar for -10.  This spread settled  -8.5 (9700/9708.5).  The short leg of the spread is the peak contract on the SOFR curve, SFRH7.  In treasuries, 2 thru 30-yr yields eased 2 to 2.5 bps, with tens ending at 4.034, -2.3 bps.

–Yesterday it appeared from pre-market trade that NVDA might gap open lower.  It actually ended nearly unch’d.  I only bring it up again because I saw several posts that say NVDA is now worth more than the capitalization of Canada.  And that’s with Gold making new all-time highs.  Just stupid.

–Today’s news includes Retail Sales expected +0.2 headline and +0.4 ex-auto/gas.  

–Saw this tidbit yesterday: ‘Nobody Special’ posted that paint retailer/manufacturer Sherwin Williams (SHW) suspended making matching 401k contributions a week or so ago.  Perhaps interesting as anecdotal evidence regarding weakness in housing. 

US rate markets chill in front of FOMC

September 15, 2025
*********************
–MOVE Index ended Friday at the lowest level since early 2022 at 73.37.  Treasury curve has been flattening thru the month of September, with 2/10 ending at a new recent low 105.5 (high near 123 on 02-Sept).  On Friday, SFRU5/SFRU6 one-year calendar went out at -100.75 bps (9596.75/9697.50).  FFV5/FFV6 settled -106.5 (FFV5 already has Wednesday’s 25 bp ease priced, 9595.0/9701.5).  However, the new front one-year calendar, SFRZ5/Z6 is -68.0 (9636.5/9704.5).  This spread will likely have the tendency to roll lower, though it was already as low as -80 at the end of August.  The takeaway is that the market is hesitant to project an easing schedule anywhere near Trump’s hopes.  Looking at approx 4 eases per year…  

–SFRZ5 9637.5 straddle settled 20 vs 9636.5.  Seems cheap to me given the environment.  Current EFFR is 4.33%.  Strike is 3.625%.  A 25 bp cut at every meeting into end of year (3 mtgs) would be 3.58%, right at the SFRZ strike.  Can we be that certain with 88 days to go?  Is 20 bps enough of an insurance policy?   Some new buying Friday of SFRZ5 9625/9612.5p 1×2, which settled 1.25.

–News today includes Empire State Mfg expected 5.0 from 11.9.  Retail Sales tomorrow and FOMC Wednesday.  

Suppress

September 14, 2025 – Weekly comment
******************************************

There’s an old favorite cartoon of mine.  The foreman is poking his head out of the Jury Room door, giving a lunch order to the bailiff: 11 turkey sandwiches, 1 tuna.  11 fries, 1 cole slaw.   11 Cokes, 1 Sprite.

Going into Wednesday’s FOMC, it doesn’t matter whether Lisa Cook votes or not.  Or Stephen Miran for that matter.  The market has settled on one 25 bp ease next week, and two more going into year end. Since the payroll report on 5-Sept, FFV5 settles have been 9595 or 9596.  A cut of 25 bp will result in EFFR of 4.08%, and another 25 at the 29-Oct meeting will yield a final settle of 95.9335.  Clearly we’ll get dissents for 50 on Wednesday.  Perhaps that will cause pricing for the October and December meetings to become somewhat more forceful.  Last week’s high in FFF6 was 9645 or 3.55%.  From the current EFFR of 4.33%, cumulative 75 bps in cuts would be 3.58% or 9642.  Another 25 at the 28-Jan meeting should result in a final settle of 9644.42.

Using the December contracts as the first red, first green etc, the SOFR red pack (Z6, H7, M7, U7) is still pegging ~3% as a terminal rate (9705 avg).  I think it will shift to a higher price going into year end, targeting 2.5 to 2.75% with a small risk of moving closer to 2%.  As a nod to the FOMC dots, the year-end 2027 projection for Fed Funds in June was 3.375%, having been revised higher from March which was 3.125%. SFRZ7 settle on Friday was 9697 or 3.03%.  The two lowest dots for 2027 were 2.625%. 

The more interesting aspect of trade last week was flattening of the treasury curve.  On 2-Sept, as the market anticipated weak payrolls, 5/30 treasury spread printed near 124.  It moved lower since, ending Friday at 105.  2/10 over the same period went from 63 to just above 47 on Thursday, ending the week slightly above 50.  A BBG article citing an interview with PIMCO’s Daniel Ivascyn said the firm has been cutting back exposure to the steepener after a strong year.  “It’s performed so well that our conviction level has come down” adding “…we have to be careful of surprises.”

The title of this note refers to just about everything these days: dissenting views, negative market signals, data, truth.  I am more specifically thinking about it in terms of yields, especially at the long end / mortgage rates.  Nothing addresses a housing ‘emergency’ like low financing rates.  Maybe that’s a potential surprise to which Ivascyn obliquely referred. 

The point is that the administration wants long end rates lower.  They have the means to pull those levers.  In the early April turmoil related to Liberation Day, the 10y yield low was 3.997%.  Last week’s low equaled that level.  The 30y low was 4.41 in April, but last week’s low was 4.637.

Below is a chart of the MOVE index in white with one-month US vol in green.  At the end of the week. MOVE collapsed to the lowest level since early 2022, before the hiking cycle began.  US vol also testing multi-yr lows.  Another clue regarding suppression/control?

DXY (USD index) seems to reflect vulnerability based in part on this idea of suppressed long end rates.  Of course, lower near-term rates are also a big factor, among other things.  In January DXY was 110.  Low of this year was in early July at 96.38.  Current level is 97.55, with a southerly bias.  My suspicion is that 100 is now a cap and we’ll likely be testing 92 and perhaps as low as 90 by Q1.  If one big macroeconomic variable is suppressed, another one compensates. 

From the start of Q2 2020 to 03 2021 the BBG Commodity Index (BCOM) pretty much tracked SPX.  I would point to that as an era of high-touch gov’t activism, suppression.  Now look at the last two years.  One might say I cherry-picked the start date of BCOM in 2020, as that’s when Crude Oil traded negative (in April 2020).  Perhaps so, but there’s no denying that commodities in general have seriously underperformed stocks recently, even with the surge in precious metals.  So that’s my call going forward, commodity outperformance on a RELATIVE basis vs stocks.

Below is SPX (green) and BCOM (white) from Q2 2020 through 2021.

The next chart is the same, but using a start date in 2023, up until present.

My question is what might the catalyst be that both pushes long-end yields lower, while also derailing stocks?  I would guess that a rapid deterioration in the employment picture will fit the bill.  But if things unfold that way, the market will again steepen the curve, anticipating a new proactive Fed. 

As a last note, suppression and manipulation can occasionally cause unintended backlash.  I was searching for scenes that capture that idea.  I happened to recall the famous 1984 Super Bowl ad from Apple.  I’m sure that ad is a lot older than many people reading this.  In my opinion, it’s in stark contrast from tech was, or wanted to portray at that time, vs now.  Revolution and original thought vs a more slender phone that can access and synthesize the ideas of others into a neat package (without thinking). 

Today, we celebrate the first glorious anniversary of the Information Purification Directives. We have created, for the first time in all history, a garden of pure ideology—where each worker may bloom, secure from the pests of any contradictory thoughts. Our Unification of Thoughts is more powerful a weapon than any fleet or army on Earth. We are one people, with one will, one resolve, one cause. Our enemies shall talk themselves to death, and we will bury them with their own confusion. We shall prevail!

https://www.youtube.com/watch?v=2zfqw8nhUwA
Sorry, but I can’t see this side of AAPL under Tim Cook.

OTHER THOUGHTS/ TRADES

I was wrong about the upside for SFRU5, which settled 9597.5 for option expiration, almost ten lower than my estimate.  However, I still perceive risk that an outsized move in the near term is much more likely to the upside rather than downside. 

I can see buying SFRZ5 9687.5/9712.5cs for 0.5 as a disaster lotto ticket.  (Settled 1.75/1.0 on Friday). 

	9/5/2025	9/12/2025	chg
UST 2Y	350.7	355.4	4.7
UST 5Y	358.2	362.3	4.1
UST 10Y	408.6	405.7	-2.9
UST 30Y	477.4	467.8	-9.6
GERM 2Y	192.7	201.6	8.9
GERM 10Y	266.1	271.4	5.3
JPN 20Y	264.3	263.8	-0.5
CHINA 10Y	177.0	179.5	2.5
SOFR Z5/Z6	-73.50	-68.00	5.50
SOFR Z6/Z7	8.0	7.5	-0.5
SOFR Z7/Z8	20.5	18.5	-2.0
EUR	117.17	117.34	0.17
CRUDE (CLX5)	61.46	62.42	0.96
SPX	6481.50	6584.29	102.79	1.6%
VIX	15.18	14.76	-0.42
MOVE	85.29	73.37	-11.92

Yields grinding lower

September 12, 2025
*********************
–Jobless Claims yesterday at 263k highest since 2021.  CPI higher than expected 0.4% vs 0.3 exp.  However, yoy  2.9 as expected.  FFF6 post data print 9644, settled 9641.  A price of 9642 is 3.58% which is exactly 75 bps below the current EFFR of 4.33%. I.e. 3 cuts by year end.  The 10y yield tested the Liberation Day low of 4.00%, ending the day at 4.013%, down 2 bps.

–Huge volume in FFV5 of 479k, settled 9595.  By comparison, SFRU5 was 732k and SFRZ5 817k. Sept SOFR options expire today, with SFRU5 pinning 9600 (9598.75s) and SFRU6 pinning 9700 (9700.5s).

–2/10 treasury spread at futures settle was 49.6, a new recent low (3.527% and 4.013%).  Likewise, red/gold SOFR pack spread settled at a new low of 43.5, down 1.75 on the day.  I had been surprised by SOFR calendars from reds forward continuing to edge to new lows, but a BBG story yesterday shed light, noting that PIMCO has been exiting:

But Ivascyn said the firm [PIMCO] has been dialing down its
exposure to the so-called steepener trade, anticipating that
it’s no longer quite a sure thing — even though it would appear
poised to get another boost next week if the Fed resumes cutting
rates, as widely expected. 
“It’s performed so well that our conviction level has come
down,” Ivascyn said in an interview.

My feeling is that a spread like red/blue pack, which settled at a new low of 26.25 (9707.25/9681) is currently cheap, especially if the Fed is forced to accelerate easing.  Recent high in the spread was 37.

–One interesting trade: TUZ 104.875/104.50/104.375/103.875 put condor cov 104-15.375 10% paper pays 5 on 45k.  Settled 5  vs 104-138.  On the Wednesday prior to payrolls, there was (most likely the same) buyer of TUV5 104.5c for 6.5. 104.625c ~4.75 and 104.75c for ~3.75.  There have alreadly been some adjustments, but targeting the area from 104-20 to 104-24 seems reasonable.  On the opposite end of the curve, a buyer of 50k USV5  111.5p for 1.  

–Just a footnote for those who didn’t see from Fed;’s Quarterly Z.1 report:

HouseHold (HH) net worth New High Q2 176 Trillion, up $7T (that can support a LOT of consumption).

Strangely enough HH Liabilities were nearly UNCH’d at 20.98T from 20.80T in Q1.  Asset values simply levitate.  Always.

Just as point of comparison, in Q2 2020, Net Worth was $119T, so an increase of nearly 50% in 5 years.

• ABOUT:
  Former member of the CME specializing in interest rate options and yield curve strategies.

  The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results.