Steepening
August 27, 2025
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–Call it the Lisa Cook steepener. New recent high in 2/10 at 58 bps, up about 3 bps. New ytd high in 5/30 at 117, up 6.6. With the new, just auctioned, 2y yield of 3.643, 2/10 should be about 3 higher tomorrow. The high in April (Liberation Day month) was around 64. The high in 2021, post-Covid easing, was 157. 5/30 is much closer to the 2021 high of 163.
–Yesterday was the first time since April that the peak SFR contract, SFRH7, settled above 9700, at 9702.5. The highest settle of any contract all year was SFRU6 at 9706 on 30-April; the high was 9728. New lows in several near SOFR calendar spreads. SFRU5/U6 -104, down 7.5 on the day (9589/9693). SFRZ5/Z6 -78, down 5 (9622.5/9700.5). Both Z5/H6 and H6/M6 settled at new lows of -26.5.
On Monday I noted that FFV5/FFV6 was exactly -100, with Oct’25 trading very close to certainty of a 25 bp ease next month. Yesterday that spread settled -105, 9590 and 9695. (9592 is a 25 bp cut).
–One trade of note: SFRZ6 9650/9750 risk rev cov’d 9700, 0.60d, paid 4.5 for call 6k. Settles 17.75/22.5 vs 9700.5. This is near peak part of curve (H7 is 9702.5). Grind lower or explode higher.
Midcurve same strikes: 0QZ5 9650p 3.0 and 9750c 6.75.
–I added a chart gleaned from Thoughtful Money podcast where Melody Wright was a guest…she noted that median New Home prices have fallen below below Existing….i.e. home builders are offering incentives/rebates to move product but existing home sellers are clinging onto the idea that prices are strong.
–News today includes NVDA earnings. 5y auction. NVDA close 181.77. Friday’s 182.5^ is around 11.70. Bloomberg reports that Xi ousted nearly a fifth of generals that he appointed. Desperate hold on power? Probably more important than Trump firing a Fed Gov for (mortgage fraud) cause.
