Unstable coin
July 14, 2025
**************
–Bitcoin continuing to rip higher this morning, $122.5k as of this Monday morning note. As can be seen on the attached chart, SPX priced in bitcoin is unsurprisingly making a new low, in concert with our government institutions. In 2020 , SPX priced in bitcoin plummeted with Treasury doling out direct USD payments as a response to covid in the US. Today: new lows.
–This morning Japanese bonds are at or through new highs. 10y JGB is just under 1.58%; last time here was 2008. Longer maturities are at the highest yields of the 2000s, with 30y 3.16%.
–US yields rose on Friday with the curve steeper. 2y +4.8 bps to 3.912%, 10y +7.9 bps to 4.421%. High in 2/10 in April was 65 bps (my mark, BBG has 64.2). Current 52.8. CPI is released tomorrow with yoy CPI expected 2.6% from 2.4% last. Let’s plant another story that Powell is corrupt and thinking of resigning. SFRZ5/SFRZ6 one-yr calendar is printing -65, down 1.5 on the day (9615, +1.5 and 9680, +3.5). Lowest print has been -67.5 on the employment data.
–Tariffs continue to dominate the news, but Epstein’s running a hot second. Threat of 30% on the EU, with a soft corn tortilla deadline of August 1. Earnings season kicking off with big banks tomorrow, JPM, C, WFC, BLK.
Sell bonds, wear diamonds
July 13, 2025
**************
Sometimes, all you have to do is look at something simple. Economic data might be murky. But the chart below is clear.
Yogi Berra: “You can observe a lot just by watching.”
DUBLIN, July 10 (Reuters) – JPMorgan CEO Jamie Dimon said on Thursday he thought the financial market was underestimating the possibility of U.S. interest rates climbing higher, a prospect he described as a “cause for concern”.
I don’t even care for the conclusion I am drawing from this chart. I hope I’m wrong.
What stuck with me from a time long ago is something that Tom Baldwin said. Baldwin was then the biggest local in the bond pit, which was then the main futures contract in Chicago. As I recall it, he was being interviewed on some financial program, and he was sitting there, slouched back in a chair in his purple trading coat, ragged tie halfway down his shirt. That was at a time when financial types on TV wore suits. Baldwin was talking about the bear bond market which was then in traction.
I believe the year was 1987 (pre-crash). There were some monster bond moves in the 80s and early 90s. From mid-1986 to early 1987 Fed Funds were at the then-low rate of around 6%. From March 1987 to October, the bond yield surged from 7.5% to nearly 10.25%. Perhaps this interview was from June, Baldwin said when bonds started to sell off he initially fought it, buying the break. Then he said, “I could see the selling just kept pouring in, so I switched and just went with it.” That’s a hard thing to do. But the logic was starkly simple.
I’m not positive I have the timing of this story right, but I know I have the details of the interview correct. Baldwin was a huge trader; he bought the Rookery, an office building on Lasalle street for $28 million in 1989 and restored it. The Rookery might have the most beautiful lobby in Chicago.
https://www.amazon.com/Saving-Treasure-Chicagos-Beginnings-Restoration/dp/1646699157
The environment now simply looks like global bond yields want to go up.
The vertical green line starts from December 2, about one month after the US election. Since then, UK, US, German and Japanese 30-yr yields have trended higher. The 10-yr is generally used as a benchmark, why look at 30s? In my opinion, that’s where the ‘term premium’ or ‘lack of confidence in governments’ asserts itself. Blast-off in bitcoin tells a similar story: maybe the long-bond isn’t going to cushion anyone’s portfolio from anything. Maybe silver is saying the same thing. (Gold/silver ratio has plunged from a spike up to 104.7 post-Liberation Day to a new low for this calendar year of 87.18). Maybe it’s worth focusing on the fringy stuff.
Early in the administration when criticism of Powell was at a relative whisper compared to today, Bessent said he was more concerned with 10y rates than the Fed’s short-term rate target. Here’s a Feb 6 headline from CNBC:
Bessent says Trump is focused on the 10-year Treasury yield and won’t push the Fed to cut rates
Like a lot of things, that’s gone right out the window.
The treasury is likely to favor issuing t-bills rather than long bonds. The BBB has violently jerked US priorities from getting spending under control to juicing growth in an attempt to outpace inflation. Brilliant idea, but global long rates are saying, “I don’t quite like the smell of that.” And the administration is now hyper-focused on short rates because a cut in funds immediately transfers to short term bill rates and will save the gov’t some money. In the short term. Short. Sighted.
Markets have been slow, making it tempting to take a month off. Nothing happens in August, right? In August of 2015 China devalued. Looking back, it’s barely noticeable on the chart. What if Trump fires Powell and Xi is removed from power, all in August? That would be pretty fun. Usually in the US there’s a cabinet shake-up after a year of a new administration. This year it’s likely to come in August. Everything’s in hyper-drive.
OTHER THOUGHTS/ TRADES
Trade from last week:
SELL 3x FVU5 107p at 8.5 and BUY 1x USU5 110p 31
FVU5 107p settled 9 ref 108-03, so -0.5 on 3 = -1.5. USU5 110p settled 43 ref 112-29, +13.
Not likely to be over. Roll bond puts down and sit on your hands.
Below is original rationale for trade. At Friday’s settle CTD bond was 4.75% of 11/43, giving the USU contract DV01 of $136.90.
***********
The current Cheapest-to-deliver bond is 4.75% of 2/41. Using that bond makes the DV01 on USU5 $125.30 per $100k. However, as the yield moves higher, the CTD changes. Using Bloomberg’s CMS screen, if the yield on the contract goes up by 25 bps (to a price of 111-04) then the CTD becomes 4.75% of 2/43. The DV01 on USU5 increases from $125.30 to $138.70. That’s an increase of >10%. Which, in my mind, should mean an increase in vol of 10%. An increase of 50 bps makes the CTD 3% of 11/44, which has a current DV01 of $157.60. Of course, due to convexity these DV01s will get a bit smaller as yields go higher. But the implication is that otm bond puts should probably be more expensive. The CTD on the 5y note does NOT change with a move of 100 bps either way. My inclination is to SELL 3x FVU5 107p, 8.5/64 (settle ref 108-1125 with -0.17 delta), and BUY 1x USU5 110p, 31/64 settle ref 114-08 with -0.18 delta. Vega on the 110 put is approx. 7/64’s. I.e. if the vol goes from 11.7 to 12.7 then the premium on the put rises from 31 to 38.
********************************************************
This week:
Tuesday: CPI expected +2.6% yoy vs +2.4% last.
Earnings: JPM, C, WFC
Wednesday: PPI, Beige Book
Thursday: Retail Sales, Jobless Claims
Friday: Housing Starts
| 7/3/2025 | 7/11/2025 | chg | ||
| UST 2Y | 388.0 | 391.2 | 3.2 | |
| UST 5Y | 393.1 | 399.0 | 5.9 | |
| UST 10Y | 433.4 | 442.1 | 8.7 | |
| UST 30Y | 485.1 | 495.6 | 10.5 | |
| GERM 2Y | 183.1 | 189.6 | 6.5 | |
| GERM 10Y | 261.3 | 272.3 | 11.0 | |
| JPN 20Y | 235.2 | 250.7 | 15.5 | |
| CHINA 10Y | 164.2 | 166.4 | 2.2 | |
| SOFR U5/U6 | -89.0 | -86.0 | 3.0 | |
| SOFR U6/U7 | 5.0 | 4.0 | -1.0 | |
| SOFR U7/U8 | 20.0 | 21.0 | 1.0 | |
| EUR | 117.86 | 116.90 | -0.96 | |
| CRUDE (CLQ5) | 67.00 | 68.45 | 1.45 | |
| SPX | 6279.35 | 6259.75 | -19.60 | -0.3% |
| VIX | 16.38 | 16.40 | 0.02 | |
| MOVE | 86.09 | 85.48 | -0.61 | |
Day Baseball
July 11, 2025
**************
–Bitcoin new high this morning, nearing 119k. Market cap is $2.63T. Top 5 cryptos according to coinmarketcap.com have combined market cap of around $3T (bitcoin, ethereum, tether, xrp, bnb). Look around at the world’s political leadership. Bitcoin up over 7x since late 2022. NVDA market cap $4T.
–Waller says the Fed is restrictive and has room to cut. August FF settled at 9569 (EFFR is 4.33% or 9567). FOMC in 2.5 weeks. Ten year yield unch’d at 4.342%. Slightly higher in front, while 30y yield was about 1 bp lower after a solid auction. I marked wi at 4.888% at futures settle.
–Couple of large SOFR steepeners thru call spreads. Not recommendations, just interesting plays.
+20k 0QU5 9700/9750cs vs
-20k 3QU5 9675/9725cs
(6.5s vs 9676.5 & 5.5s vs 9652.0)
Paid 1.5 for 0QU, settled 1.0
+10k 2QU5 9700/9750cs vs
-10k 3QU5 9675/9725cs
(5.25s vs 9671.5 & 5.5s vs 9652.0)
Paid flat for 2QU, settled -0.25
Just considering the current shape of the SOFR strip, I might prefer green to blue (+2QU and -3QU). SFRM6 is 9664 and U6 is 9676.5, so spread of -12.5 implies that there’s a significant headwind on the 0QU call spread. SFRM7 to SFRU7 rolls POSITIVE, spd is +5.5, 9677 to 9671.5, while SFRM8 to SFRU8 is +4.5 (9656.5/9652). Of course, if we’re just looking at the current curve, all call spreads expire worthless. These trades require a shift in sentiment encompassing near-term, untethered, outsized, irresponsible easing (think Sue Eleen Mischke walking down the street, flouting society’s conventions).
–Lee Elia passed. If nothing else today, it’s worth listening to his famous 1983 rant (use headphones, there’s a LOT of profanity). OnTapSportsNet puts it this way:
Before he was known for a tirade, Lee Elia was trying to lead the Cubs out of the dark. He didn’t win a title, but he left behind something just as lasting, the truth.
Drivel
July 10, 2025
**************
–Back in the day on the old CME floor when we traded eurodollars, I would meet a group for market discussions and general pontifications on Thursday post-close at the Venice Cafe, a lunch cafeteria across the street from Sears Tower and 2 blocks south of the Merc. A more succinct description is: we sat at a big round table and drank a lot of happy hour beer. Although these meetings could sometimes get boisterous, bordering as they were, on the edge of inebriation, the conversations were a hell of a lot more insightful then this little excerpt from the FOMC minutes: (I am adding a couple of editorialized comments which might have come from the round table).
A couple of participants noted that, if the data evolve in line with their expectations, they would be open to considering a reduction in the target range for the policy rate as soon as at the next meeting. [Think they can go in July? NO! …would make Powell look like he rolled over. Well I bot some Aug Funds at 68.5. Then you’re gonna lose at least 1 tick, Why not buy some extra time with some Sept SOFR call spreads? Of course, you’re WRONG, but you can lose your money more slowly] Some participants saw the most likely appropriate path of monetary policy as involving no reductions in the target range for the federal funds rate this year, noting that recent inflation readings had continued to exceed the Committee’s 2 percent goal, that upside risks to inflation remained meaningful in light of factors such as elevated short-term inflation expectations of businesses and households, or that they expected that the economy would remain resilient. [Did ya see copper? New all time hi. Watching antimony? It’s up 10x in the last few years! WTF is antimony? I think they use it to strengthen beer mugs you idiot. They’re not going at all. Guy bot Z5 9587.5/9568.75/9562.5p trees. Great trade for a hold.] Several participants commented that the current target range for the federal funds rate may not be far above its neutral level. [We’re neutral now!! No we’re NOT. Gonna ease 150 by this time next year]
Various participants discussed risks that, if realized, [yes, bring two more pitchers] would have the potential to affect the appropriate path of monetary policy. Regarding upside risks to inflation, participants noted that, if the imposition of tariffs were to generate a larger-than-expected increase in inflation, if such an increase in inflation were to be more persistent than anticipated, or if a notable increase in medium- or longer-term inflation expectations were to occur, then it would be appropriate to maintain a more restrictive stance of monetary policy than would otherwise be the case, especially if labor market conditions and economic activity remained solid. [Labor market’s going to hell because of the tariffs and threats. Doesn’t mean they need to ease]
–Anyway, there was a buyer of >100k FFQ5 yesterday at 68.5. Open interest up 66k. Either goes to 67 or 92. CME lists a product called FYT. 3*FVU vs 2*TYU. Traded 35k early and 45 k all day. So that’s 135k FV vs 90k. Traded early at +0.25, by end of day it was -1.75/-1.5. Open interest in FVU was +32k but TY was unch’d. Doesn’t make much sense…thought was a steepener.
–Jobless Claims expected 235k today.
Electric Shock Therapy for Dr Copper
July 9, 2025
************
–Light volume day Tuesday. Yields were up 1.0 to 2.5 bps across the curve. Every SOFR contract from SFRH6 to SFRU8 settled -2.5. Copper was the big mover, up to a new all-time-high on the COMEX due to the latest tariff threats. HGU5 settled 5.6855, +0.6595 on the day. Still talking about Epstein? They use copper in Teslas right?
–FFQ5 settled 9568.5, just 1.5 bps away from the current EFFR of 4.33%. Little chance of an ease at the July FOMC. The next year out, FFQ6 settled 9668.0, 99.5 bps lower in yield. SFRU5/Z5 3m calendar is -28.0 (9585.5/9613.5). Powell’s term ends in May and there’s been some speculation that BIG CUTS would be the first order of business for a new Chair, but SFRH6/M6 is -22.0 (9638/9660).
–Ten year auction re-open and FOMC minutes today. Old data, but yesterday afternoon’s consumer credit report was weak. Revolving credit (credit cards) decreased at an annual rate of 3.2%. Non-revolving (cars, school loans) increased at annual rate of 2.8%. Probably some ‘beat-the-tariff’ buys for cars. Manheim released the Wholesale Used Car Price Index yesterday. On a seasonally adjusted basis, prices rose 6.3% yoy, a 1.6% rise above May levels. “The non-adjusted price in June decreased 1.1% compared to May, which now makes the unadjusted average price higher by 5.1% year over year.”
Long-end yields vulnerable
July 8, 2025
*************
–Main feature yesterday was curve steepening and a weaker long bond. Auctions this week, with 3s today, 10s tomorrow and 30s on Thursday. Yesterday tens rose by 5.9 bps from Thursday (at the early futures settle) to 4.393% and 30s jumped 7.8 bps to 4.929%. As mentioned over the weekend, as yields go higher the cheapest-to-deliver bond for USU5 moves to a longer duration issue. On Thursday the CTD was 4.75% of Feb 2041, giving USU5 a DV01 of $125.30, but at yesterday’s close it had switched to the 4.75 of Nov 2043 giving USU5 a DV01 of $137.60. This morning USU is down 10 at 112-29. On the contract, there’s an increased risk that selling begets selling. The tariff news likely doesn’t help as it might be perceived as inflationary, and certainly Japan (slapped with a 25% tariff yesterday) had been a buyer of US debt. Japan’s long rates are also moving toward new highs, perhaps siphoning off some demand from US.
–Former NY Fed President William Dudley had an opinion piece yesterday on BBG, saying the Trump administration is doing the wrong things in its goal to get borrowing costs lower. Rather than using strongarm tactics, the admin should concentrate on getting government finances in order (that was the deal made long ago between Clinton and Greenspan). Dudley notes that [constantly] threatening the Fed’s independence might make investors fear renewed inflationary pressures.
–The system depends on confidence, not on cons. Even something like the botched handling of the Epstein (non) files is a cautionary signal. This morning’s NFIB Small Business Optimism eased just slightly to 98.6 from 98.8. NFIB says the 51 year average is 98. From the site: A substantial increase in respondents reporting excess inventories contributed the most to the decline in the index. The Uncertainty Index decreased by five points from May to 89. Nineteen percent of small business owners reported taxes as their single most important problem, up one point from May and ranking as the top problem again.
Ease pushed back
July 7, 2025
************
–NFP +147k (rate of 4.1%) was strong enough to disabuse the market of any thoughts of a near term ease. Weakest contract was SFRZ5 which plunged 13.5 bps to 9616.5. That price/yield of 3.835% is 50 bps lower than the current EFFR of 4.33% suggesting 2 eases by year end (FFF6 settled 9619 or 3.81%). But not at the July 30 meeting: FFQ5 settled 9568.5, around 5% odds. SFRZ5/SFRZ6 one-yr calendar posted a new low -65.5 (9616.6/9682.0). Curve flattened hard: Z5 -13.5 at 9616.5, Z6 -6.5 at 9682.0, Z7 -4.0 at 9665.5 and Z8 -3.5 at 9647.0.
–On the treasury curve 2s jumped 9.5 bps to 3.88% and 30s up just 3 to 4.851%.
–Passage of BBB didn’t appear to have much effect on Friday’s abbreviated session, though stocks are seeing small profit-taking. USU5 currently prints 113-30, just edging out Thursday’s low of 113-31. This week brings more tariff drama and auctions of 3, 10, 30 year paper beginning tomorrow. FOMC minutes Wednesday.
Can Confidence Crack – CCC due to BBB
July 6, 2025 – Weekly comment
*********************************
A couple of weeks ago, I listened to a podcast featuring Brent Donnelly. In it, he said that a friend urged him to read The Storm Before the Storm; The Beginning of the End of the Roman Republic (by Mike Duncan). The recommendation was given due to striking parallels between that period of political and social upheaval and today. The friend had to pester Donnelly into reading the book, and of course, he ultimately agreed that comparisons were on target: corruption of the political elites, issues of wealth distribution and rights, the devolution of civil discourse and institutions. The period covers a long sweep, from 146 to 78 BC.
In what could easily apply to Washington DC, when Jugurtha, King of Numidia in North Africa, departed Rome after being summoned to testify, “he issued his famous judgment: ‘A city for sale and doomed to speedy destruction if it finds a purchaser.’”
Chapter 1 begins with this quote:
Thieves of private property pass their lives in chains; thieves of public property in riches and luxury
–Cato the Elder
Perhaps a note coinciding with US Independence Day, which leads off with negative connotations related to the fall of an empire is inappropriate, but a general sense of dismay regarding the fiscal irresponsibility of the BBB is the catalyst. I claim no expertise on ramifications or details of new legislation, but I do have the sense that this administration seeks to manipulate markets in whatever way deemed necessary to generate desired outcomes. I’m hoping for the best but harboring nagging uncertainties.
An example is last week’s item: FHFA’s Bill Pulte calls on Congress to investigate Fed Chair Powell. All that comes to my mind is the only endearing thing I ever heard Lawrence Summers say (in this case about the Winkelvoss twins)
“One of the things you learn as a college president is that if an undergraduate is wearing a tie and jacket on Thursday afternoon at three o’clock, there are two possibilities. One is that they’re looking for a job and have an interview; the other is that they are an asshole. This was the latter case.”
My personal feeling is that Powell may have made a few errors in policy, but he’s above reproach as a public servant. Mr. Pulte appears to be a yapping lap dog. In a suit.
In terms of policy errors, the global zero-to-negative rate regime ranks near the top. It went on for too long, culminating in what I am sure will be more stories like this: 138 Year Old Del Monte Foods files for bankruptcy. The firm cites changing consumer habits toward private labels, and tariffs on steel used in canning, but perhaps the largest catalyst relates to debt: (BBG) “The firm’s cash interest expense increased from $66 million in 2020 to $125 million in the 2025 fiscal year …materially exceeding current projected earnings before interest and taxes.” Rates were zero in 2020, 2021; buy-out targets were loaded with debt which now needs to be refinanced at market rates.
A lot of long-delayed cash flow problems seem to be bubbling to the surface, including one related to the end of the student loan debt moratorium. From Torsten Slok of Apollo:
“FICO scores could go down roughly 65 points on average, with up to 10% of US households facing a steep decline in their credit score. This could impact their ability to get new loans to finance the purchase of a car, a house, or new furniture.”
There are many crosscurrents in the data, notably highlighted by Thursday’s stronger than expected payroll data (147k, 4.1%) versus, for example the ADP report showing 33k job losses, and MSFT cutting 9k employees. I saw a couple of posts on X: Bravos Research: Every major recession since 1980 was preceded by this signal which has just been triggered: over 30% in the Conference Board survey expect there to be fewer jobs in six months. From @GlobalMktObserv : “Leading Economic Index has fallen ~5% annualized over 5 months, triggering a recession signal. It’s down 16% from its peak and hit a 9-yr low. Such drops have preceded every US recession since 1960.”
Next question is what data we can trust. News articles are bemoaning cuts in federal spending at agencies that collect statistics. Shouldn’t the whole AI boom make retrieving solid data easier at less cost? Google has had a price tracking index since 2010 and of course Truflation has a similar database, which shows a range of 1.85% to 2.27% in consumer inflation over the past two months.
During Powell’s June 18 FOMC press conference, he said “…the labor market’s not crying out for a rate cut.” On the SOFR strip, eases are priced in, but the highest contract, SFRZ6 settled Thursday at 9682.0 or 3.18%, less than 1.25% lower than the current Fed Effective rate of 4.33%. August Fed Funds settled 9568.5, now indicating only about a 5% chance of a rate cut at the July 30 FOMC.
The following chart shows the US 10y yield vs EFFR (Fed Funds Effective Rate). In this calendar year, the spread has ranged from +46 to -33, and in the past three months it has been even tighter, from +27 to -17. Trump’s crying, Pulte is crying. But this spread isn’t. On the other hand, SFRZ5/Z6 made a new low settle Thursday at -65.5 (9616.5, -13.5 & 9682, -6.5). One-year SOFR spreads have been inverted for a long while but are not extreme. I personally had thought conditions justified an ease at the MAY FOMC. But the market is NOT currently forcing the issue. Looking at the MOVE index and SOFR straddles reinforces the same idea. MOVE at 86.09; in the past year there are only two instances it pushed below that level: mid-December at 82.4 and mid-Feb at 83.9. On Tuesday atm SFRZ5 9631.25^ settled 42.75, on Thursday the atm 9612.5^ settled 36.5. This decline is partially due to the move to a lower strike, but on Thursday the 9631.25^ settled 42.0 (from 42.75). even with a 13.5 bp move in the underlying future.
It’s somewhat interesting to note that while the spread between overnight funding rates and the 10y yield has been fairly tight since February, over the same time frame the 10y to 30y spread rallied from 19 to 55 bps (51.2 on Thursday).
Note that post-covid this spread peaked at 85 bps, and post-GFC at 160 bps (not shown on chart). So it’s not at stretched levels. However, a return of bond vigilantes (as experienced in last week’s UK Gilt swoon) could blow spreads out. Could the BBB provide a catalyst?
From Philip Marey of Rabobank:
In the same letter on July 1, the nonpartisan CBO stated that compared with their January 2025 baseline budget projections, it would increase deficits over the 2025-2034 period by $3.4 trillion. So in reality, the OBBBA has a significant upward impact on the budget deficit.
What’s more, the bill front-loads tax cuts in the next few years and delays spending cuts, causing a rise in the budget deficit in the short run and political pressure down the road to extend the tax cuts, further increasing annual budget deficits. Many deficit-increasing measures are scheduled to expire in 2028, while many deficit-reducing measures do not start until after 2028.
OTHER THOUGHTS/ TRADES
At the end of 2017, in Trump’s first term, Congress passed the Tax Cuts and Jobs Act (TJCA). From the beginning of September 2017 to December, SPX rallied in anticipation, from 2476 to 2690, 8.6%. The rally accelerated post-passage, from 2696 on Jan 2 to 2873 at the peak on Jan 26, up another 6.5%. But by Feb 8, gains unraveled to 2581. The Jan 2018 high wasn’t exceeded until August.
I don’t anticipate knee-jerk buying due to BBB, but if there is, the above snippet is a cautionary tale not to chase it too aggressively.
********************************************************
This week:
Tuesday: NFIB Small Business Optimism and Consumer Credit
Auction: $58b 3yr
Wednesday: FOMC Minutes. Tariff Deadline
Auction: $39b 10yr re-open
Thursday: Jobless Claims
Auction: $22b 30yr re-open
Friday: Federal Budget
| 6/27/2025 | 7/3/2025 | chg | ||
| UST 2Y | 374.9 | 388.0 | 13.1 | |
| UST 5Y | 383.1 | 393.1 | 10.0 | |
| UST 10Y | 427.9 | 433.4 | 5.5 | |
| UST 30Y | 483.7 | 485.1 | 1.4 | |
| GERM 2Y | 185.7 | 183.1 | -2.6 | |
| GERM 10Y | 259.0 | 261.3 | 2.3 | |
| JPN 20Y | 233.3 | 235.2 | 1.9 | |
| CHINA 10Y | 164.6 | 164.2 | -0.4 | |
| SOFR U5/U6 | -91.5 | -89.0 | 2.50 | |
| SOFR U6/U7 | 8.5 | 5.0 | -3.5 | |
| SOFR U7/U8 | 22.0 | 20.0 | -2.0 | |
| EUR | 117.18 | 117.86 | 0.68 | |
| CRUDE (CLQ5) | 65.52 | 67.00 | 1.48 | |
| SPX | 6173.07 | 6279.35 | 106.28 | 1.7% |
| VIX | 16.32 | 16.38 | 0.06 | |
| MOVE | 87.93 | 86.09 | -1.84 | |
Happy 4th of July!
July 3, 2025
*************
–NFP today expected 110k from 139k last, with a rate of 4.3%. Given yesterday’s -33k ADP, risks appear weighted towards sub-100. I had expected to see quite a bit of high gamma put buys in front of today’s data as yields remain fairly low, but an example of a late trade was a buy of TY wk1 Monday 112.25 CALL covered 111-19, 6 paid for 10k. (TYU5 settlement of 111-20). Since it expires Monday, it captures both today’s data and weekend risks (terror threats).
–Early part of the session was dominated by UK politics, with Starmer leaving Chancellor of the Exchequer Reeves to twist in the wind. Unsurprisingly, UK finances are beset by faltering confidence. On Tuesday 10y Gilt yield was 4.453% and it shot up to 4.61; 30y went from 5.228% to 5.42%, nearly 20 bps. This morning yields have eased with 10y 4.545%.
–In US rates, the curve steepened. SFRU5 was strongest, at +1 to 9599. U6 -1.5 to 9685, U7 and U8 both -3 to 9675.5 and 9655.0. Ten-yr yield +4 bps to 4.289%, being drawn closer once again to the current EFFR of 4.33% which has acted as a magnet.
–Other snippets from yesterday:
-MSFT cutting 9k jobs, a bit less than 4% of workforce (228k)
-Del Monte (canned fruits/vegetables) filing for bankrupty. In and of itself not important, but perhaps a sign of things to come for companies that were loaded up with debt when rates were low, and now can’t handle re-financing.
-FHFA’s Pulte calls for Congress to investigate Powell. And stomps his feet for added emphasis.
–Nice pop in Corn and Wheat last couple of sessions (off lows).
–Rate futures SETTLE 12:00 CST (1:00 NY time). Screen stays open until 4pm CST (regular time), but stocks and cash treasury close early.
Fries with that?
July 2, 2025
**************
–Market rotation yesterday with selling pressure on front end of curve. Weakest contracts SFRM6, U6 and Z6, all down 7 to 9675, 9686.5 and 9690, with Z6 still the peak of the SOFR strip. While front end was weak, USU5 was almost unch’d after a soft start, settling 115-12, just -3. Cash 30y yield unch’d at 4.78%. TUU5, FVU5, SFRZ6 all had outside days and closed lower, suggesting hedging pressure, and concerns in front of tomorrow’s NFP, which is expected 110k from 139k last. Quarter-end SOFR rate was high at 4.45%, also a factor. Rotation in stocks as well with Nasdaq Comp -0.8%, SPX -0.1, but Russell 2k +1.0% as the Senate passed BBB. NQU5 was down over 200 late in the day. I would expect to see some high gamma put buys today in FV in front of NFP.
–JOLTS much stronger than expected 7300, coming out 7769. As friend JD notes, around 300k of the increase was in Accommodation and Food Services. From Wayne’s World: “I’ve had a lot of Joe jobs. Nothing I would call a ‘career’. Let me put it this way: I have an extensive collection of name tags and hairnets.”
–An X post arbitrarily said NFP would have to be under 50k for the Fed to consider an ease in July. The average NFP over the past year is 144k. NFP for October 2024 was originally released at just +12k but later revised to +44k. On the original release date, November 1, TY contract settled 110-01 and SFRZ5 was around one-year forward, settling 9630. Both settles were actually lower on the day. Yesterday, TYU5 settled 111-275 and one-yr forward SFR contracts are M6 at 9675 and U6 at 9686.5. August FF yesterday settled unch’d at 9572, still indicating about 20% odds of a July 31 cut. While a sub-50k number may increase rate cut odds, I would suspect the political environment and gov’t stimulus make the hurdle much higher.
–Several large trades are pegging SFRU5: Buyer of 45k SFRU5 9587.5/9593.75/9600/9612.5 broken call condor for 0 (and 5k for 0.25). This trade looks for just one cut at the Sept meeting; max value 6.25 on a settle between 9593.75 and 9600. More aggressive was a buy of 15k SFRU5 9600/9625/9650c fly for 4.0. SFRU5 settled yesterday 9598 or 4.02%, 31 bps under the current EFFR of 4.33%.
