Shaking out weak longs
September 25, 2025
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–In the wake of the FOMC, rate futures have gently pulled back, with inflation concerns being voiced by several officials. For example, the peak SOFR contract, SFRH7, hit a high of 9712 the day prior to the Fed, but settled 9696 yesterday, down 3.5. TYZ5 posted a high settle of 113-21 on 9/11, but was a point lower yesterday at 112-205. I’ve attached a chart of the 10y yield; in my opinion it’s going to be hard for tens to get through 4.17 to 4.19. The market has simply tamped back odds of further easing and shaken out some longs before its next move into the 3 handle.
–In terms of short-end calendar spreads, FFV5/FFV6 settled almost exactly at -100 (9592.5/9693.0). Front October has pegged the new EFFR, while one-year forward currently prices 4 more quarter point cuts. However, SFRZ5/Z6 settled at a new recent high of -63.0 (9631.5, -1.5/9694.5, -3.0). The implication is that easing will be ‘front-loaded’. Yesterday I mentioned SFRH6/M6 3-month calendar as a spread to watch since it will bracket a new Fed Chair (and possible outsized easing), but that too, settled at a new recent high of just -22 (9651.5/9673.5). Not even ONE ease!
–SFRH6/SFRU6 six-month calendar settled -36 (9651.5/9687.5). The six-month generic spread on BBG (SFR3 vs SFR5) was around -55 post-Liberation Day.
–Quiet Wednesday…a few trades of note:
SFRZ5 9625/9643.75/9662.5c fly 20k sold 7.25 to 7.0. Settled 6.75
SFRX5 9687.5/9712.5cs 0.25 paid 15k
0QU 9800/9825c 1×2 25k sold 1.25 to 1.00, settle 5.25/2.0 or 1.25
The Nov call spread is, of course, a lotto ticket for something bad happening. Covers the 29-Oct FOMC and NFP. I’d prefer to just pay 0.5 for the lower strike (SFRX5 9675 thru 9693 strikes all settled 0.5).
Buyer 15k TYX5 112/111ps vs 114c for 1.
Put spread settled 15 and 114c settled 12, so 3 for ps. The BIG position is long TYZ5 114 calls (175k).
–Jobless Claims expected 234k with Continuing 1933. Existing Home Sales -1.4% expected.
