Brief CME session today, with plenty of risk
April 3, 2026
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–Short session today with most also taking Easter Monday off. Payrolls expected +65k with rate 4.4%.
–Notable buying TYK 112c (delta neutral) over 42k. Settled 0’16 vs 111-005 with open interest +25k. While holiday time decay is a slight headwind, vol protection makes a lot of sense.
–Yields overall little changed yesterday with tens -1.5 bps to 4.307% and SOFR strip mostly unch’d to +0.5. Peak SOFR SFRZ7 is 9657 or 3.43%.
–I only saw the headline: (FT) US Treasury Calls in Regulators for Talks on Private Credit Risks. The run on Blue Owl is garnering more headlines as well. Seems as if the trend of PIK (payment in kind) kicking the can down the road should have been a red flag, and indeed, it was. But took a long time to develop. When funds are gated, the investors end up either selling other assets that can provide liquidity, or borrowing against such assets to keep the plates spinning. Fraying continues at the edges.
–Story on ZH is a couple of days old citing a report by Apartment List:
- Rent prices nationally are down 1.7% compared to one year ago. Year-over-year rent growth is now at the lowest level that we’ve seen in our estimates going back to 2017, surpassing a record set in the early months of the pandemic. The national median rent has now fallen from its 2022 peak by a total of 5.5%.
https://www.apartmentlist.com/research/national-rent-data
–I’m leaning toward an economic model of the ‘Paradox of Thrift’ for consumers. Individual consumers pull in the reins on spending and increase saving, but in the aggregate, demand falls. In terms of an inflationary impact, I think the thrift model will overwhelm the effect of rising energy costs.
Trump injects risk (who would have thought?)
April 2, 2026
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–Yields ended a bit higher yesterday with 10s up 1.3 bps to 4.322. Green SOFR pack (3rd yr) was weakest on the strip at -3.125, settling 9648.375 or right around 3.5%. Of course, Trump’s address yesterday evening sparked a risk-off environment, with ESM down 1.2% as of this note, and NQM down 1.5%. May WTI (CLK6) has exploded above $107/bbl. USM6 bond contract is printing 112-27, having touched 114-14 on Wednesday morning. Low tick last week was 111-23.
–Data today includes Challenger Job Cuts, Jobless Claims and Trade Balance. I would imagine the longer uncertainty continues the more likely that negative ramifications will hit the domestic economy.
–In early March, SFRZ6/H7 3-month calendar printed as low as -9.5. On 3/27 the high print was 0 and settled yesterday at -2.0 (9637.5/9639.5). Everything is correlated, but this spread perhaps is as good as any to use as a proxy as to whether the energy shock is more inflationary or growth negative. If the spread tends positive, that means the rate on SFRH7 is higher than Z6, a signal that inflation is a problem and Fed may be hiking. As spread tends more negative it’s an indication that the market will look thru the price shock and focus on waning growth which requires easier FFs. Worth a mention is that in 2007 to mid-2008 oil was surging. In fact, in mid-March 2008 front WTI was around 106 (similar to now and on its way to 140). In March 2007 it was around 60. That energy rally did NOT stop the Fed from easing; in Sept 07 FF were 5.25 and by Feb 2008 FF were 3.0%. Of course, financial stability was of paramount concern back then, unlike now.
Curve positively sloped; modest easing expectations
April 1, 2026
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–The month of March saw the US 10y yield go from 3.94% on 27-Feb to 4.43% on 27-March, nearly 50 bps. Currently 4.28% with halfway back level 4.186%. Using TYM with actual high and low ticks, 50% retrace is 111-31 (now 111-10); likely a reasonable target as oil stabilizes and the needle is moving in the direction of an end to Iran hostilities. Implied vol has been receding directionally with yields.
–Yesterday yields ended slightly lower, with 10s (at futures settlement) at 4.309%, down 3.3 bps. SOFR contracts +2 to +4 on the day. Peak SOFR contracts Z7 and H8 settled 9659.5 or 3.405%, about 25 bps below current funds. 2y yield ended at the top end of the FF target at 3.797%. 2/10 is just over 51 bps.
–News today includes ADP expected 40k from 63k last. Retail Sales expected +0.5%, +0.3% ex-auto/gas. ISM Mfg 52.3 from 52.4 last. Last year ended 47.9. Yesterday Consumer Confidence posted a minor bounce at 91.8 (87.9 exp), but forward expectations at 70.9 remains mired near lows of the past 4 years.
–Early close Friday with trade stopping 11:15 EST (10:15 CST). Settlements at 10:00 CST.
Grasping for conclusion
March 31, 2026
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–WSJ headline: Trump tells aides he’s willing to end war without opening Hormuz.
–While crude oil contracts remain near highs, stock index futures have rallied slightly. End-of-quarter and end of Japanese fiscal year. I, for one, am happy to see the calendar turn the page on March.
–I hadn’t previously heard of Jim Paulsen’s WRS (Walmart Recession Signal) but saw a reference yesterday. The index “measures WMT’s stock price against a basket of luxury stocks” with the idea being that slowdowns are associated with substitutions from more expensive consumer goods to WMT. In the past six months WMT is up 21%. I don’t know what’s in the basket, but would note that something like LULU is down 18% over the same time period. Unsurprisingly, ‘Paulsen told Business Insider, “The WRS is increasingly advising caution about the US economy. My guess is the econ avoids a recession this year, but I am becoming more convinced that a significant US slowdown is unfolding…” NEWSFLASH!
–Today’s news includes Conf Board Consumer Confidence, expected 88 from 91.2. Forward Expectations survey is 68.4 from 72.0. JOLTS expected 6890k from 6946k This series has trended lower for the past 4 years.
–Yields tumbled yesterday with tens down 9.4 bps to 4.342%. On the SOFR strip, SFRH7 and M7 were strongest, +10.5 on the day to 9635.5 and 9642.5. right around current EFFR of 3.64% (9636). With the fall in yields implied vol retracted hard. Example, on Friday SFRM7 9637.5^ settled 1.0225 ref 9632. Yesterday same strike settled 99.75 ref 9642.5. TYM atm 110^ was 2’34 on Friday and yesterday’s atm 111 strike settled 2’24.
It started (and ended?) in March
March 30, 2026
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–Friday featured a drop in short end yields and corresponding bounce in the curve. 2y ended -7.2 bps at 3.912% and 10y UP 2 bps to 4.436%. On the SOFR strip, Z6 was +8.5 at 9623.5, Z7 +5.5 at 9649.5 (peak contract), Z8 +1.5 at 9639.5, and Z9 -0.5 at 9625.0. This stretch of 3 years has SFR contracts trading between 3.5% and 3.75%, exactly the FF target band.
—This morning we’re seeing yields grind a bit lower as the US escalates into ground conflict in Iran. Oil is higher with CLK6 currently near $102/bbl, but stocks and bonds aren’t responding negatively. Almost feels like the month of March has encompassed the entire move: the onset of the US bombing campaign at the start of the month saw a brief blowoff top in bonds, followed by consistent selling thereafter. Stocks also trended lower through the month. But this morning, as we go into quarter-end, there are signs that selling activity is abating. Maybe we get the “all-clear” on April Fool’s Day (Wed), with the employment report being released on Friday.
–$/yen opened above 160 this morning and Japan’s finance ministry warned of intervention with ‘decisive action’. Not much effect so far (159.75), but there are a couple of related articles on BBG suggesting Japan might indirectly intervene in the fx market by selling Brent and WTI futures. Strikes me as ultimately unlikely and ineffectual, but then again, perhaps it’s not much different than Biden emptying out the SPR to contain prices. In any event, for the time being near oil contracts continue to lead the surge; intervention would surely cause calendar spreads to collapse in the near-term.
State Industrial Policy (low BOND yields)
March 29, 2026 – Weekly comment
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Three souls are transported to the Pearly Gates to bear witness to St Peter.
The first one is approached by St Peter and asked for his IQ and occupation. Answer, 180, physicist. St Peter smiles and says, that’s splendid! We can discuss earthly advances in nuclear fusion and nano technologies.
The second says his IQ is 125 and he’s a geologist. St Peter is delighted and says they can have wonderful conversations about advances in LIDAR technology and how it’s reshaping current understanding of former cultures.
The third says his IQ is 75. St Peter: “What’d cattle do today?”
There was a guy on the CME trading floor; successful cattle trader, Jeff Silverman or something like that. Dress shirt and cinched silk tie under his pressed trading jacket (while most wore khakis and polos with tattered ties). Peppered hair impeccably combed. I never really interacted with him, and by no stretch do I mean to imply a connection with the joke above (Actually when I first heard it, the punch line was ‘bellies’, not ‘cattle’). I was though, standing right there when someone asked Jeff why he traded cattle instead of euro$’s. He said, “because I can count cows”.
Crystallization of the current theme of physical versus paper. Derivatives are piled on top of derivatives, but physical supply is key, as every ‘expert’ now reminds us.
Hard steepener to finish the week. On Friday 2/10 jumped almost 10 bps to 52.4, (3.912, -7.2 and 4.436%, +2.0). On Thursday I noted that 2/10 was right on the lows of mid-2025, and starting to strongly suggest a move toward possible Fed tightening. But Friday’s equity market weakness was likely the excuse to cover curve shorts or initiate longs. (SPX down 2.1% on the week). Thirty year bond closed just under 5% (net week chg +4bps). The high in 2025 was 5.094%, and in late 2023 the high was 5.112%. The chart looks to me like an upside breakout is in the cards. Indeed, a similar looking formation in German 10y bund HAS resulted in an upside breakout: late 2023 high was 2.996% and Friday’s level was 3.092%,
It’s quite easy to make a case for hoarding supplies and building inventories ( => inflation). Gone are the days of just-in-time inventory management and unlimited financial liquidity. I know I’ve mentioned this little vignette before, but years ago when I worked on the CME floor, there was a mini-mart newstand in the lobby. The lottery had built up to some preposterous number, and there was a small line of exchange clerks and traders buying tickets. A CME member was in front of me (I didn’t know him) and made his order, and the lotto clerk printed the tickets said it was $50. The buyer was exasperated and whined that he only asked for $5 worth, not $50. I interjected and said no problem, I would take the other $45. That guy took one quick suspicious look at me and immediately said NO…$50 was FINE. At that second the prehistoric pea-brain overwhelmed everything else: “I don’t want these tickets, but there’s NO FCKING WAY I am letting this guy get them.” At that second, he probably would have paid double. An instantaneous snap between calculations of value and price. That snap doesn’t last forever; human ingenuity eventually intervenes (perhaps not for that guy). However, in the world of macro bonds, it can last a LONG time, as witnessed by the ‘widow-maker’ years of JGB yields, when obvious deterioration of debt fundamentals presented an unassailable case for shorts. The proper description was not unassailable, but UNSALABLE (against BOJ buying).
Anyway there was a provocative substack by Dr Pippa Malmgren at the end of last week, talking about critical material chokepoints, and how the US had already anticipated some of the shortages and had secured supplies. This list includes natural gas, fertilizers, petrochemicals. She also highlighted fantastic new innovative companies working on modular nuclear reactors and new power sources, that would likely make Hormuz a much less important chokehold going forward. The point is (whether one agrees with the analysis or not) the stress of the current conflict is transforming ingenuity into new technologies. My takeaway is not to underestimate the planning capabilities of the US military and/or the new generation of entrepreneurs. Every day I see articles saying that Iran is ‘winning’ and has plenty of resources. I am not buying into it. I need to be able to count the cows.
An outlier thought occurred to me on Friday. These new technologies take lots of capital, for ultimate long-term (rather than month-to-month) results. In some cases outcomes can be thought of as existential: we need big LONG-TERM capital commitments, likely backstopped by the US gov’t. The administration has already proven a willingness to bend rules and force a heavy hand on domestic industry to meet national goals. When considered in this light, the apparently off-handed news item that companies may not need to report quarterly results fits hand-in-glove with the concept of US strategic industrial policy.
Imagine this scenario with Warsh coming in: Bessent and Warsh and the rest of the admin agree that LONG TERM financing rates are key. Warsh comes in and DOESN’T cut funds, but indicates that long bonds will be capped at 4.75% or lower for the forseeable future. Normally one might think the admin wants a weak USD. But the paradigm has changed. DXY is already above 100, but without the prospect of FF easing, it quickly rallies to 105. The US is no longer concerned about selling product overseas, it’s concerned about securing long term supplies and WANTS a strong dollar. Using low long-term rates to build strategic long term companies and secure US supplies. It’s perhaps the ultimate juxtaposition between Trump’s daily impetuous proclamations and a really long-term strategic state policy. I guess we’ll know by watching Kalshi bets.
Is the idea worth a trade? Probably small odds. But I can see owning EUR 105p. Implied vol is jacked, perhaps worth selling US puts, but likely too early. As I mentioned, the yield charts indicate higher, and vol will go with it in the short term.
Tuesday is quarter end and Japan year-end. Retail Sales and ISM Mfg Wednesday. Payrolls Friday expected +60k.
| 3/20/2026 | 3/27/2026 | chg | ||
| UST 2Y | 390.2 | 391.2 | 1.0 | |
| UST 5Y | 400.9 | 406.8 | 5.9 | |
| UST 10Y | 438.2 | 443.6 | 5.4 | |
| UST 30Y | 494.0 | 498.0 | 4.0 | |
| GERM 2Y | 266.9 | 267.0 | 0.1 | |
| GERM 10Y | 304.1 | 309.2 | 5.1 | |
| JPN 20Y | 311.6 | 325.5 | 13.9 | |
| CHINA 10Y | 183.6 | 181.4 | -2.2 | |
| SOFR M6/M7 | -6.0 | -3.0 | 3.0 | |
| SOFR M7/M8 | -17.5 | -14.5 | 3.0 | |
| SOFR M8/M9 | 11.5 | 13.5 | 2.0 | |
| EUR | 115.72 | 115.09 | -0.63 | |
| CRUDE (CLK6) | 98.23 | 99.64 | 1.41 | |
| SPX | 6506.48 | 6368.85 | -137.63 | -2.1% |
| VIX | 26.78 | 31.05 | 4.27 | |
| MOVE | 108.84 | 111.95 | 3.11 | |
Vanishing Liquidity
March 27, 2026
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–The broad overview appears to be one of capital starvation. Early Thursday morning, yields were higher across the board. 5y ended at an explosive new high 4.096, up 58 bps just since the end of Feb (+12.8 on the day).. 10’s surged to 4.416 (+9.2), highest since last July and up 48 since end Feb. Stocks were lower, as were precious metals. Our old Mag7 friends met Thor’s hammer with significant new lows in MSFT (-32% from Oct hi) and META (-31% from Aug hi) and NVDA looking vulnerable to wash-out after long sideways topping pattern.
–Yesterday on X I posted attached 2/10 chart, which tends to anticipate Fed policy. Currently 43, it’s nr lows from 2H last year. Important level to hold…if it doesn’t, suggests hikes on way. Perhaps coincidental, but it seems to me that ever since Trump/Pulte thought it would be a good idea to bring criminal charges against Powell, the perception of non-ending Fed liquidity has been called into question, and the evidence is becoming more pointed. Bond issuance is likely to rise, energy infrastructure is going to require massive money. EFFR (Fed Effective) is still 3.64, but the peak SOFR contract is SFRH’28 at 9645 or 3.55, just 9 bps under EFFR (recall reds had tradeed up at 9712 as recently as March 2). The front Sept SOFR contract settled -6.5 at 9617, or 3.83, 19 bps ABOVE EFFR. It’s not a welcoming financial environment, and even Trump’s late pronouncement to delay hitting Iran energy infrastructure until April 6 registered only a brief rally.
–A few months ago, I had mentioned that the first SOFR straddle over 100 bps was way out into the greens. Now, just a year out, SFRM7 9625^ settled 103.5 ref 9623 in M7. Vol absolutely exploded yesterday, another signal of liquidity problems. Front atm straddles in SOFR were up an astounding 10 bps! For example, SFRU6 9612.5^ settled 55.5 on Thursday ref 9617. On Wednesday, SFRU6 9625^ settled 45.5 vs 9623.5. Panic.
–April treasury options expire today. On Wed, TYJ 110.5^ settled 31 ref 110-18. Last print this morning is 109-28, with 110^ trading 22. They will try to peg 110 strike, but it’s likely to be a nail-biter.
Yields pressing to new highs
March 26, 2026
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–Market continues to yo-yo with conflicting reports of escalation and de-escalation. Stress in private credit markets is another constant factor. Yesterday yields declined with 2s -4 bps at 3.881%, 5s -5.5 at 3.968% and 10s -6 at 4.324%. On the SOFR strip reds, greens, blues and golds were +6.5 to +6.0. Going into today’s 7y auction, yesterday’s yield declines/price gains have evaporated, for example red SOFR pack is -5.5 and 10y yield is back at 4.375%. Five-year is at a new cycle high this morning (4.029%) with 10 & 30 close to new highs. Oil rebounding somewhat; precious metals are under pressure.
–Yesterday featured a new low in 2/10 at 44.3 bps. Last August low was 41.5.
–RTRS reports that China is considering easing bank shareholder limits, but no real reaction in China equities.
–April treasury options expire tomorrow. Current TYJ6 110.5^ is 31 ref 110-18. Peak put open interest is 110p with 80k. Settled 2 yesterday and current 4/6 ref 110-175. Job Claims expected 210k.
Range of outcomes becoming wider
March 20, 2026
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–So far in March, ten year gilt has gone from a low 4.23% on Feb 27 to 4.93% this morning as BOE advised yesterday it was ready to react to an inflationary shock. Dec’26 Sonia was down 45.5 bps yesterday to 9558 and is 9543.5 this morning. Feb 27 settle on Dec Sonia 9680, so the month’s move has been around 140 bs!
–US rates also jumped on the short end. Weakest contract SFRH7 which settled 9634, down 17.5. SFRZ6 was down 16.5 at 9631, now at a rate ABOVE the current EFFR of 3.64. In comparison to sonia, SFRZ6 was 9694.5 on Feb 27 and is now 9625 (Friday morning) so 70 bps. US 2y note closed above the upper band of the FF target (3.50-3.75) ending at 3.81%.
–The BBG quote of the day is “Reality is not always probable, or likely.” by Jorge Luis Borges. For anyone who’s been around the last few years, that’s like saying the sky is blue.
–Keeping the Borges quote in mind, Bibi contended yesterday that Iran’s nuclear production has been destroyed. Perhaps intended to save US equities in front of today, the biggest option expiration ever. It helped yesterday, but this morning it looks like we’re right back to a ‘risk-off’ weekend.
Rates soar
March 19, 2026
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–Rate futures crushed yesterday as oil prices continued to rise and Powell emphasized economic and inflation uncertainty. Fed dots regarding FF were same as last, projecting one ease this year and one next year. PCE inflation for 2026 projected 2.7 from 2.4 at the Dec meeting, with 2027 up 0.1 to 2.2 from 2.1. GDP Growth also projected higher: 2.4 from 2.3 for 2026 and 2.3 from 2.0 for 2027. Powell noted there’s been zero growth in private payrolls, but zero might be equilibrium given immigration trends. “Zero employment equilibrium might feel like a downside risk”.
–Near SOFR contracts are in freefall. SFRZ6 settled 9647.5 yesterday, -9.0 bps at 3.525%. That’s not even reflecting ONE ease this year. This morning the contract prints 9640 or 3.60% vs EFFR of 3.64%. Ten year yield rose 5.5 bps to 4.255%, with a new recent low in 2/10 at 50.7 (2y 3.748%, +8.1). SFR settles yesterday: Z6 9647.5, -9, Z7 9665.0, -7.5, Z8 9657.5, -6.5.
–Carlyle’s Jeff Currie yesterday on BBG highlighted the disconnect between physical energy prices and ‘paper’ prices reflected by futures. He noted that the spread between Singapore and Rotterdam prices for jet fuel has collapsed, now both around $230/bbl. (no excess supply). Energy infrastructure damage will take a long time to rebuild. Currie’s summary: “You can’t PRINT molecules.”
–The other truly amusing X post is NY Gov Hochul asking high-net worth individuals to come back to NY to support generous social programs. (She says she ‘needs’ them). She notes that NY is in competition with other states and that remote work changed everything. Wow. Stunningly belated recognition of what everyone else knew several years ago.
–Worth a note that Micron (MU) blew estimates away yesterday (revenue nearly tripled yoy). However, the stock which closed 461.73 is 435 this morning, a somewhat ominous signal going into the biggest option expiry ever tomorrow.
–Today’s news includes Jobless Claines expected 213k, Philly Fed and New Home Sales (Powell mentioned weakness in housing during presse
