Rates push higher
May 14, 2025
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–Rates continued to push higher, even as CPI data was better than expected at 0.2% on the month and 2.3% yoy. If using CPI, then FF can be considered restrictive, as the spread is now 200 bps (EFFR 4.33%). Front end SOFR contracts weakest with SFRU5 down 3.5 to 9593.0. On May 1 the JUNE contract traded as high as 9594.5 (yest settle 9570) so the adjustment in front end has been harsh, as possible Fed easing has been priced out.
–Waller spoke this morning about Fed economic research; nothing about current policy. Jefferson at 9:10 on the economy.
–Stocks continued to rise with SPX +0.7% and around flat on the year. The curve steepened, with 2’s up 1.5 bps to 4.015%, 10s +4 bps to 4.497% and 30s up 5.3 to 4.942%.. According to BBG the high yield in 30s this year is 4.977%. Bonds ignored better than expected inflation data (bearish sign).
–One stock worth noting is UNH, which was down 18% yesterday at 313 and is down nearly 50% from the April 11 high of 599.47. Current mkt cap $282 billion; a lot of wealth evaporated.
–Interesting SOFR opt trade: 35k SFRU5 9575p bot vs sold 0QU5 9612.5p for credit 4.0 to 4.25. U5 9575 puts settled 5.5 vs 9593 (18 bps out) while 0QU 9612p settled 10.25 vs 9655 (42.5 otm). Consider June contracts now: M5 settled 9570 so 9575p in-the-money, while SFRM6 settled 9649. I.e. the roll-down in near contracts is large relative to backs (reds).
–A couple of notes from the Fed’s Household Debt report. It turns out that delinquency rates rise without forbearance (unless it’s commercial RE).
Household Debt Hits $18.20 Trillion; Student Loan Delinquencies Jump
Total household debt increased by $167 billion to reach $18.20 trillion in the first quarter, according to the latest Quarterly Report on Household Debt and Credit. Credit card balances fell by $29 billion from the previous quarter to stand at $1.18 trillion; auto loan balances declined by $13 billion to $1.64 trillion, marking only the second time balances have fallen from a prior quarter since 2011. Student loan balances grew by $16 billion to reach $1.63 trillion, and the data show a large uptick in the rate at which balances went from current to delinquent, due to the resumption of reporting student loans on credit reports after a nearly five-year pause. Mortgage balances increased by $199 billion to reach $12.80 trillion and HELOC balances rose by $6 billion to $402 billion. Aggregate delinquency rates rose from the previous quarter, with 4.3 percent of outstanding debt in some stage of delinquency. Transition into serious delinquency remained stable for auto loans, credit cards, and other debt.
Missed federal student loan payments that were not previously reported to credit bureaus between 2020Q2 and 2024Q4 are now appearing in credit reports. Consequently, 7.7% of aggregate student debt was reported 90+ days delinquent in 2025Q1 compared to less than 1% reported in 2024Q4.
https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2025Q1
