Ending the week with long bond pushing towards 5% (4.85 now)
May 9, 2025
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-Rate futures hammered yesterday, with reds leading on SOFR strip, -16.0. SFRU6 settled 9672.5, down from 9706.0 one week earlier Wednesday (just before payrolls). In treasuries, the 5y was weakest, with the yield +12.3 bps to 3.993%. Tens rose 10 bps to 4.371%.
–So in six trading sessions SFRM6 fell 36.5 (9702.5 to 9666), and SFRM7 fell 28, from 9692 to 9664. May midcurves expire in six sessions including today. ATM straddles, 9662.5 strike, are 15 and 14 bps. Of course the previous 6 days included payrolls and FOMC.
–Buyer of about 50k SFRZ5 9568.75p for 3.5. Settled 4.75 ref 9633.0. EFFR is 4.33% or 9567.0 SOFRRATE has been between 4.32 and 4.38. May SOFR (SFRK5) settles next week and is 9570.5. Might say that the 9568.75p are cheap protection in case of hike thru year-end. Though 30s were up only 6.8 bps to 4.834%, the long end trades quite heavy. USM5 settled 114-13 and is printing 114-04 as of this writing.
–US/UK trade agreement was announced though it seems details were sparse. Now for the China talks which will likely prove more elusive unless the US caves in.
–Is this possibly accurate? Notification from Spanish authorities: If you wish to withdraw more than 3k EUR in cash, you must notify the Tax Agency at lest 24 hours in advance… You must also specify the purpose of the withdrawal. Failure to comply may result in fines up to 150k EUR.
Powell uncertain but rate vol drops and stocks pop
May 8, 2025
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–The theme of the FOMC press conference was uncertainty. The former thinking was that if the Fed waited too long to move, they’d be too late, behind the curve. Now the dependency is on actual hard data, not surveys or sentiment. Powell: “…well positioned to wait” “…no real cost to our waiting.”
–The SOFR strip responded by inverting further. SFRU5 was the weakest contract, settling -4.0 at 9612.5. SFRU6 was +1.0 (9688.5), U7 +2.0 (9673.5) and U8 +3.5 (9652.0). The peak contract moved back a slot to SFRZ6 at 9689.0. SFRM5/M6 one-yr calendar settled -106 (9576/9682), but U5/U6 closed at a new low -76. Z5/Z6 also a new low at -44.5. The red pack (2nd year forward) ended at 9686.25, which would would be compatible with a terminal FF target of 3.0-3.25%. Current is, of course, 4.25-4.5%.
–New buyer of 20k SFRU5 9612.5/9587.5/9562.5p fly for 6.5 (settled 7.0 vs 9612.5). Just as a comparison of downside ‘certainty’ vs upside ‘we have no idea where this might go’ the 9612.5/9637.5/9662.5 CALL fly settled 3.0, less than half the value of the put fly. Equidistant 9587.5p settled 6.75 vs 9637.5c 12.25.
–On Tuesday evening it was announced that US and China delegations would meet to discuss trade, which juiced equity index futures. I would anticipate a hardened stance from China, who yesterday emphasized that the US had requested the meeting.
–Powell mentioned that sentiment was bad during covid, but spending continued. Well of course it did, the gov’t was ladling out cash! Though ESM5 ended positive yesterday, it’s worth a mention that GOOGL fell 7.25% on news that searches utilizing GOOGL had declined on Apple devices. Market cap was erased by ~$150 billion. Astonishingly enough (to me anyway) a colleague mentioned that a friend searches for info on TicToc, and I guess now it’s all AI. NVDA ended up 3.1% on proclamations of relaxed chip rules, so I guess that offsets GOOGL. I suppose my concern would be the uncertainty of cash flows or ‘wealth creation’ from the entire tech sector, which could impact consumer activity. But it hasn’t yet.
Spite
May 7, 2025
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–The big news is a meeting between US and China trade delegations (announced post settles). Obviously the abrupt jolt to trade terms has hurt both countries. However, China has advised the population to make shared sacrifice. The US hasn’t. I wouldn’t be looking for any quick resolutions.
–PBOC cut the 7-day reverse repo from 1.5 to 1.4%. The Fed meets today and is expected to leave rates unchanged. In my opinion there was enough evidence to cut at this meeting even though PCE prices are somewhat over target (Core PCE yoy 2.6%). If the Fed were to cut, EFFR would go to 3.83%, still leaving real rates around 1.25%. The hard data hasn’t given Powell an easy invitation to cut, but the soft data has. (New report says US individual Chapter 7 bankruptcies up 16% in April). WSJ tactfully suggests the Fed is “waiting for clarity”. Both China and Powell are responding to Trump’s threats in the same way: spite.
–Paul Tudor Jones opined yesterday there’s a 10% chance AI wipes out 50% of humanity in the next 20 years. India/Pakistan are trying to get a head-start. Trade data released yesterday for March suggests stockpiling occurred. Consumer Credit released post-FOMC for March, may indicate same (but the debt still lingers).
–Yields fell somewhat after Monday’s rise. Tens down 3.5 bps to 4.307% after a strong auction (4.353 at cut-off and actual result 1.1 bp thru at 4.342%). Wi at futures settle was 4.317%. Thirties auctioned tomorrow. The 2y yield fell 5.1 bps to 3.785% (just more than half a percent below current EFFR). On the SOFR strip SFRH6 thru Z6 were all +6.5 (9668.5, 9681.5, 9687.5, 9687.5). U6 and Z6 are tied for peak position. A couple of the near 1-year calendars made new lows as reds outpaced the fronts. For example, U5/U6 settled -71, down 5 bps. The front 1-yr calendar, SFRM5/M6 remains below -100 at -102 (9579.5/9681.5). FFN5/FFN6 settled -108. Eases are being pushed back.
–Seemed to be a consistent (if modest) theme of call spread buying. Example, new buy 25k 0QU5 9725/9775cs for 9.75 to 10 (helping to push U5/U6 lower; some bought vs selling N5 9675c). Settled 10 vs 9687.5; pay 1 to make 4. SFRU5 9675/9750cs 4.75 paid 25k (settled there ref 9616.5). One other interesting small curve trade: SFRH6 9725/9825c vs 2QH6 9712.5/9812.5cs 0.5 paid for H6 in 4k. SFRH6 settled 9668.5 so 56.5 away from lower strike, while SFRH8 settled 9659.0 or 53.5 away. The 2-year futures spread is thus 9.5 bps. A Fed pivot toward aggressive ease would likely cause the futures spread to widen significantly. Consider the Euribor curve: Yesterday, ERM5/ERM6 settled negative 30.5. But ERM6/ERM7 settled positive 30.5. So, M5 and M7 settled at the exact same price of 9800.5, while M6 was 30.5 higher at 9831.0. ERM8 settled 9774.0. So on the bor curve, M6 to M8 settled +57 compared to SFRH6/H8 at +9.5.
https://x.com/AlexManzara/status/1919857270222893432
Ease kicked down the road
May 6, 2025
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–Front end SOFR contracts still adjusting to the idea of eases being pushed further forward. SFRM5 settled 9578 down 2 on the day and U5 settled 9612, down 3.5. SFRM5/U calendar, which was as inverted as much as -45 on Wed, April 30, just before NFP (9691.5/9636.5) settled yesterday at -34 (9578/9612). So SFRU5 has dumped 24.5 bps, approximately one ease, in the past three sessions.
–Long end yields threatened to push higher, but ended with only slightly higher levels. Tens +1.9 bps to 4.341% in front of todays auction. Thirties rose 3.3 bps to 4.826, auction is on Thursday. Gold is +62.7 this morning at 3385. On May 1, the low settle of the pullback, it was 3222, a gain 5% from Thursday’s settle to this writing.
–PLTR down about 9% this morning after yesterday’s earnings report. Equity futures lower. Trade number today expected -129b.
Yields rise on stronger than expected NFP
May 5, 2025
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–Yields jumped Friday on stronger than expected payrolls of 177k (167k private). Unemp rate still 4.2%, Tens up nearly 10 bps to 4.322% with the yield seemingly gravitating to the same level as the current Fed Effective Rate of 4.33%. Shorter end led the way with 2s up 14 bps to 3.838%. On the SOFR strip SFRM6 was weakest, settling down 17 at 9674.5 or 3.255%. FFN5/FFN6 settled exactly at -100 bps (9576.5/9676.5). Easing is still expected of course, just being pushed back further in time. Just after Liberation Day, on April 7,, FFN5 ticked as high as 9639.5, the high settle was the next session at 9609.5 or 3.905%. Friday’s settle at 9576.5 is 4.235%, not even indicating 50/50 odds for an ease in June. Both Goldman and Barclays pushed back estimates for the next ease from June to July.
–Vol pulled back with big econ data now behind us. TYN5 111.5^ settled 2’16 vs about 20/64’s higher earlier in the week. FOMC is on Wednesday with no rate change expected. Auctions of 3s 10s and 30s today, Tuesday and Thursday.
–An item in WSJ notes that China stopped publishing some econ data, for example, unemployment of 16 to 24 yr olds ended a couple of years ago. But anyone can see the 10y note yield, stuck at 1.63%. A more dramatic price is Taiwan’s dollar, which has surged ~3% today following a 4% jump at the end of last week. (RTRS) “While Taiwan’s central bank has denied the White House was pressing for a rise in some Asian currencies as part of a trade deal, markets were sensing a shift anyway.” (32.48 on April 28 to 28.93 this morning).
–A couple of large trades Friday. Roll of 100k 0QU5 9700/9725cs into 0QZ5 9700/9725cs, paid 1, bought December (another indication of delayed easing expectations). Underlying contracts SFRU6 and SFRU7 both settled 9679.5.
Buyer of 40k SFRZ5 9900c ~1.25 synthetic, new position settled 1.0. SFRZ5 settled 9644.0 (-14.5).
A few pricing notes
May 4, 2025 – weekly comment
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The week ended with NFP printing +177k, alleviating economic fears and pushing easing prospects further into the future. PCE price data, which was released Wednesday, showed 0% month/month, with yoy at +2.3% and Core +2.6%, nearing the Fed’s target. PCE prices yoy have been between 2.8% and 2.1% since the start of 2024.
On the week, yields rose, with twos +7.6 bps to 3.838%, tens +5.6 to 4.322% and thirties +5.7 to 4.793%. The big moves came Friday, with 2s +13.9 bps, 10s +9.7 and 30s +6.1.
The two year yield is still about 6 bps lower than its level on April 1, just before Liberation Day. The yield is now 50 bps below EFFR of 4.33%. However, the ten-yr is about 15 bps higher than April 1, and thirties are 27 bps higher and fully above the range from March. The thirty-year yield appears poised to retest 5%.
FFK5 settled 9567.5, essentially matching the current 4.33% Fed Effective rate, meaning that no chance of ease is being priced for this week’s FOMC. Both Goldman and Barclay’s (and perhaps others) pushed back their estimates for the next ease to July from June. FOMC calendar: Wednesday, followed by June 18 and July 30. August is a ‘clean’ month with no Fed meeting. FFQ5 settled 9593.0 or 4.07% which prices certainty of one cut. (4.33 – 0.25). The previous week FFQ5 settled 9604.
SFRU6 has been the peak contract on the SOFR futures strip for some time. I’ll highlight one trade which occurred first thing Thursday morning, a seller of 15k 0QU5 9712.5c at 33 to 32 ref 9711.5. Thursday morning was top in rate futures’ prices. I posted the chart below on X; it’s the rolling 2nd red future, identified as the 7th quarterly contract on BBG. 0QU5 9712.5c settled 19.25 on Friday, as vol was crushed into the end of the week. I mention this specific trade because it caught the
absolute top on the peak contract, and seems to further establish perceptions of a capped level on the reds of around 2.5% or 9750. That’s not to say that hedges aren’t being placed for an absolute collapse. For example, into the end of the week SFRU5 9800c were bought in size of 50k ~2.0, settled 1.75 vs 9615.5, and SFRZ5 9900c 1.25 paid 40k, settled 1.0 vs 9644.0.
One other interesting note on SFRU6. There was a large call spread roll Friday from 0QU5 9700/9725c spread into 0QZ5 9700/9725cs, paying 1 for the Dec, 100k. Settled 7.5 for 0QU5 and 8.5 0QZ5. The futures spread, U6/Z6 settled 0 with both contracts 9679.5s. Throughout April, that calendar had been positive 0.5 to 3.5, i.e. SFRU6 higher in price than Z6. Just another small indication that easing expectations are edging further out the curve.
A few news clips below:
From Charlie Bilello on X:
Incredible: Amazon’s AWS revenue over the last 12 months ($112 billion) was higher than the revenue of 468 companies in the S&P 500. $AMZN
Also on X:
Torston Slok [Apollo] warns that this morning’s employment data was collected the week after Liberation Day tariffs were announced and that the correlation to University of Michigan survey data suggest that employment is set to turn lower and “perhaps even negative.”
From the Atlantic ‘Don’t look at the stock market. Look at the ports’:
The Port of Los Angeles, the busiest in the Western Hemisphere, processes about 17 percent of everything the United States imports or exports in shipping containers. The adjoining Port of Long Beach accounts for another 14 percent.
Eugene Seroka, the executive director of the port of LA …estimated that cargo arrivals would soon be down 35 percent over the same time last year. [leading to massive layoffs in trucking and other related infrastructure]
From the South China Post (April 29). [don’t expect a quick resolution on US/China tariffs]
China’s state media has urged the public to revisit Mao Zedong’s famous 1938 essay “On Protracted War”, saying that it offers “great inspiration for the international struggles of the new era” amid the protracted economic hostilities with the US.
The article’s timing coincided with a hardening of Beijing’s public messaging against Trump’s tariffs – including the dismissal of speculation that any progress had been made in bilateral communications.
SPX rose 2.9% this week and, on a closing basis, has retraced almost exactly 0.618 from the Feb ath of 6144 to the April 8 low 4983. Friday’s close 5687; the 61.8 is 5700. On the ES futures contract, open interest on April 2 (Liberation Day) was 2.11 million. By 4/8 (the low) open interest had jumped to 2.33 million, an increase of about 10% which I attribute to demand for hedges. As of Friday, those hedges have mostly been lifted, with OI back down to 2.15m. VIX declined to 22.68 from 24.84 the previous week. I would suggest that hedges are again advisable from here.
This week treasury auctions 3s 10s and 30s on Monday, Tuesday and Thursday. FOMC Wednesday.
| 4/25/2025 | 5/2/2025 | chg | ||
| UST 2Y | 376.2 | 383.8 | 7.6 | |
| UST 5Y | 388.5 | 393.2 | 4.7 | |
| UST 10Y | 426.6 | 432.2 | 5.6 | wi 432.7 |
| UST 30Y | 473.6 | 479.3 | 5.7 | wi 478.8 |
| GERM 2Y | 171.9 | 176.2 | 4.3 | |
| GERM 10Y | 247.0 | 253.3 | 6.3 | |
| JPN 20Y | 222.4 | 221.0 | -1.4 | |
| CHINA 10Y | 166.1 | 162.8 | -3.3 | |
| SOFR M5/M6 | -95.5 | -94.5 | 1.0 | |
| SOFR M6/M7 | 9.0 | 3.0 | -6.0 | |
| SOFR M7/M8 | 23.5 | 21.5 | -2.0 | |
| EUR | 113.62 | 113.00 | -0.62 | |
| CRUDE (CLM5) | 63.02 | 58.29 | -4.73 | |
| SPX | 5525.21 | 5686.67 | 161.46 | 2.9% |
| VIX | 24.84 | 22.68 | -2.16 | |
| MOVE | 105.79 | 101.40 | -4.39 | |
Payroll Friday!
May 2, 2025
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–Payrolls today expected +135 to +140k. Unemployment rate expected 4.2% which has been the high of the cycle so far. Two years ago in April 2023 we hit the low of 3.4%. (We’ll be expecting to see interviews with Claudia Sahm this coming week, known for the Sahm recession rule).
–A strong open in rate futures yesterday was met with selling and ultimately yields ended much higher. For example, TYM5 high was 112-20+, but the settle was 111-27+. The high was the highest since early April’s tariff announcement. Outside day, closed near the low. Ten year yield rose 6 bps to 4.225%. ISM Mfg data was slightly stronger than expected at 48.7. Talk of US/China negotiations.
–The peak SOFR contract, SFRU6 also posted a reversal outside day: high of 9712.5, low of 9693 and settle near the low at 9695.5 (-10.5). On Wednesday I had mentioned the 0QU5 9750c/9650p risk reversal which settled 5.0 (17.25/12.25) vs 9702.5 ~0.55d. Early in the day yesterday, a seller of about 15k 0QU5 9712.5c at 33 to 32 near the highs (9711.5). Looks new but open interest was up only slightly. In any case, nice sale as calls settled 25.75. Vol was down across the sofr strip. Yesterday, 0QU5 9750/9650rr settled 1.0 for the call ref 9695.5 (14.5/13.5). With 55 delta that’s a slight softening of skew.
Other SOFR options included early buy of 25k 0QK5 9662.5p for 1.5 (settled 3.0 ref 9691.5). Buyer adding to earlier purchases of SFRZ5 9568.75p for 3.0 (20k) had previously paid 4.0. (settled 4.0). New buyer of 25k SFRU5 9800c for 2.5, settled 2.25 ref SFRU5 9628.0.
–Eurozone CPI 2.2% and the ECB deposit facility is 2.25%. Fed supposedly can’t ease, with FF target 4.25-4.5% and CPI 2.4.
–Atlanta Fed GDP Now for Q2 posted at +1.1% yesterday.
–How does this square with Nominal GDP up 3.4% in Q1??
https://x.com/GlobalMktObserv/status/1917934532726079581
McDonald’s sales in the US dropped by the most in 5 YEARS: US same-store sales fell 3.6% year-over-year in Q1 2025, the most since the 2020 CRISIS. This comes as consumers sharply pulled back on spending.
It looks bad, but we don’t have hard evidence
April 30, 2025
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— Soft data is Joe Biden wandering around aimlessly on stage, hard data is Morning Joe Scarborough saying he’s as sharp as a tack.
–Perhaps it’s a tasteless analogy, but I think that’s what we’re seeing with soft economic surveys: unassailable evidence of decline. Yesterday it was Consumer Confidence, which plunged to 86.0 vs expected 88. We’re at the covid low! (85.7 in April 2000). Dallas Fed Mfg imploded to -35.8 on Monday while Services, reported yesterday, slid to -19.4 vs last at -11.3. JOLTS has been in steady decline, now at 7192 (expected 7500). Atlanta Fed’s GDP Now was updated yesterday to -2.7% for Q1, with Gold adjusted at -1.5%. The NY Fed is reading off the teleprompter at +2.63% for Q1. This morning we’ll see the official Advance number for Q1, expected to be somewhere in the middle, just slightly positive. PCE Prices yoy expected 2.2% from 2.5% with Core 2.6 from 2.8. QRA auction composition in the afternoon. META and MSFT report.
–SFRU6 settled at new high for the move at 9702.5 (though the high tick was 9728 on 4/7). High settle post-ease was 9706 on October 1. Even though this contract is 130 bps below the current Fed Effective rate of 4.33%, midcurve 0QU5 9750c are 17.25 (0.30d) while the 9650p are 12.25 (-0.25d), so 5.0 premium to the call. New recent lows posted in near SOFR calendars: SFRM5/U5 3mo spread settled -41.5, down 2 on the day. SFRM5/M6 one-year clalendar is at -108 bps (9690.5/9698.5) down 3.5 on the day and 27 from April 15, while SFRU5/U6 is -70.5 (9632.0/9702.5).
–In treasuries, tens eased another 4.8 bps to a yield of 4.172%. The 2yr down 3 bps to 3.658%. Gundlach says the Fed always follows the 2y. The question is when.
Forward yields dropping
April 29, 2025
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–Steeper curve with 2s dropping 7.7 bps to 3.685%, fully 5/8% lower than the current EFFR. Tens only down 4.6 to 4.22%; 2/10 at 53.5. The strongest SOFR contract is also the peak contract, SFRU6 now at 9698.5, just over 3%. Near SOFR one-year calendars made new lows, with U5/U6 down 8 to -104.5 (9629/9698.5) and Z5/Z6 down 4.5 (9660.5/9696.5).
–QRA is muddled by the debt ceiling, appears to indicate lower borrowing needs by the Treasury than feared, perhaps a contributor to yesterday’s rally. Of course, Dallas Fed Mfg is yet another soft indicator which plunged to -35.8, only lower during the covid spike.
–Large trade yesterday was a roll, selling (exit) 0QU6 9750/9800cs to buy the the same in 0QZ, paying 2 to buy extra time. Did ~35k as a roll and sold extra 0QU6. Also a new buyer of 50k SFRZ5 9568.75p for 4.0 (settled 3.75 ref 9660.5).
–In the heart of earnings, with MSFT and META tomorrow and AAPL, AMZN Thursday. Today’s news includes JOLTS expected 7500k from 7568 last, Consumer Confidence expected 88.0 vs 92.9 last and Dallas Fed Services.
Slow start to the week
April 28, 2025
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–Treasuries ended the week at the highs, with cash 10s down 3.7 bps on Friday to 4.266%. From Feb 25 to March 27, TYM5 settlements were between 110-135 and 111-105. Then we had early April turbulence, and since April 14 the settlement range has been 110-245 to Friday’s high 111-165. Outside of tariff announcements the treasury market has been stable with a bias toward lower yields.
–The most inverted one-yr SOFR calendar is June’25/June’26 at -95.5. The lowest contract (SFRM5) to the peak contract (SFRU5) is nearly the same at -99 (9588.5/9687.5). New recent lows posted in SFRU5/U6 at -61.5 (9626/9687.5) and SFRZ5/Z6 at -31.5 (9654/9685.5). The Fed is showing little enthusiasm for near term easing while peak contracts (a year from now) tend to target the 3% area.
–It’s a big week for economic releases in front of next Wednesday’s FOMC. Dallas Fed Mfg today. JOLTS Tuesday. Wednesday should be interesting with Q1 GDP, ECI and PCE prices. Payrolls on Friday. Rarely does the Fed deviate from market pricing in front of a meeting, and FF contracts are pretty much locked down for no change. FFK5 settled 9569.5 vs current EFFR of 4.33% or 9567.0. However, if data prints weak, there’s still a chance for a last minute pivot.
