Some playing for big ease, but long end remains suspect
July 29, 2025
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–Yields rose slightly with curve steepening bias as supply weighed. Twos and fives auctioned yesterday, 7s today. Ten-yr yield +3.4 bps to 4.418%. On the SOFR strip, all contracts from SFRU6 to SFRU8 were -2 to -2.5. Standout option trade was on SFRZ5: new buyer of 60k SFRV5 9618.75/9643.75 c spd for 4.5. Settled at 4.5 ref 9607.5. For this call spread to fill, the market needs to perceive a FF target of 3.5% or lower; i.e. at least 75 bps of ease from here. Oct options settle 10-Oct, so the only FOMC with a known outcome will be Sept 17. The October meeting is 29-Oct, followed by 10-Dec. By the way, Aug FF settled 9567.75. A cheap lotto ticket for a possible ease tomorrow, but the market is convinced of a Fed hold.
–SFRZ5 futures also added 35k new positions even though the net change was only -0.5. Total Z5 open is 1.35 million. On the day, vol was down across the board in rates, with many SOFR straddles easing 1.5 to 2 bps. Somewhat surprising given the heavy news schedule.
–On the weekend I noted BLS New Tenant Rents fell an astonishing 9.3% in Q2, but I couldn’t find the source data. I did find yesterday but had to dig a bit. If it’s not an outlier then inflation’s going down. Zillow link shows a bit more context:
https://en.macromicro.me/collections/5/us-price-relative/49740/us-cpi-rent-zillow-rent-yoy
–A clip on BBG noted:
$6,835 Underwater + $49,000 Cars + 7-Year Loans = Financial Wall
The auto affordability crunch is hitting new extremes: buyers were $6,835 underwater on average with their trade-ins in June.
Maybe it’s been this way for a long time, but $6800 deficit strikes me as being quite large, compounded by rising delinquencies.
–Another fun clip from BBG notes speculative interest in UK 2061 gov’t bonds. Originally issued in 2020 or 2021, these 40 year gilts had an original coupon of 0.5% at a price of around 97. Now trading 25! There are only small coupons to be taxed and gilts are exempt from capital gains taxes, which are now at 24% for high earners. The article highlights retail interest; “…unless the UK gov’t defaults they will mature at par.” Good call mate. We’ll have a pint to celebrate…in 35 years. Maybe.
–In any case, the UK Gilt story sort of ties in with some outlier buys in US bond puts. Yesterday, US wk2 102.5p 1 paid 16k, and in the last couple of sessions there have been other similar trades. I would also note that the CTD bond on USU5 according to BBG is now 4.5% of Feb’24, which has increased the DV01 on the contract to $139. As yields rise, the CTD bond becomes longer duration…
–JOLTS today expected 7500. An article on WSJ sports this headline: AI is wrecking an already fragile job market for college grads. Consumer Confidence also today, expected 96 from 93. Consumer expectations were 69 last. Might see a bit more fragility evident in this data as well.
–QRA treasury borrowing estimate was expected to be around $850b, but was actually $1.01T. Composition of issuance tomorrow. Financing to become more heavily weighted towards bills???
–One last quick note: CME trial was won by the CME, not the B-share members. Seat prices tanked. Last trade in an IMM had been $415k, $230k offered yesterday.
