The Gov’t Closed. Open a HOOD account
October 2, 2025
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–Yields fell yesterday led by the front end as ADP came in weak at -32k with the previous month revised down to -3k. SFRM6, U6 and Z6 were strongest on the strip at +6.5 (9678, 9691.5 and 9697). Peak contract remains H7 at 9697.5, just over 3%. Slight steepener: the 2y yield fell 5.9 bps to 3.541% while 10s dropped 4.2 to 4.104%, just 1.4 bps away from what appears to be the new Fed Effective target of 4.09%. The ten year breakeven (treasury – tip) has been steady at around 240 bps, though I marked at a slight new low on the month at 235.6.
–November Fed Fund contract captures the Oct 29 FOMC. FFX5 settled 9615.5 or 3.845%. If EFFR is 4.09, an ease will mean 3.84. We’re there. And if the recent theme of 10s hugging EFFR remains intact, then sub-4% ten-year yield is around the corner.
–Despite the gov’t shutdown, vol is trending lower. I marked TYZ at 5.1 and USZ 9.9 with the former at the bottom of the range and the latter at a new recent low.
–Starting off this next part with the standard Fed disclaimer. These opinions are my own and probably don’t reflect the views of my employer.
Several items on BBG and X yesterday: First, BofA: “We see a variety of reasons that the S&P 500’s PE ratio today is not likely to mean revert to its long-term average, including the index’s shift toward asset-light business models, its higher quality of earnings, and its significantly lower leverage”. Sounds an awful lot like Irving Fisher: “..prices have reached what looks like a permanently high plateau.” Now that’s just stupid. Creating new narratives.
This next one makes a little more sense to me (BBG) More US banks will fail as the commercial real estate crash begins to work its way through to lenders’balance sheets, according to Joshua Pack, co-CEO at Fortress Investment Group LLC. Fortress has already acquired about $1.5 billion of performing office loans from financial institutions at prices ranging from 50 cents to 69 cents on the dollar.
So, CRE isn’t holding at a permanently high plateau; more like a K Mart blue-light special.
Here’s a dilly:
(BBG) Chief investment officers at Brown and Northwestern universities are turning to the secondary markets to tap into rising liquidity for their private assets, although they remain cautious over pricing.
“The flipside of a lot of retail money coming in and big evergreen funds means there is more liquidity in the secondary market,” [appropriately named] Falls said, referring to the influx of new investors in private equity, during a sluggish time for buyouts or stock market sales of unlisted assets. “You’ve got to be careful when pricing is erratic.” [like when assets are 50 cents to the dollar, see above]
Hmmm. Erratic pricing means liquidity is LOW.
Translation: We are stuck in private deals where the cash flows aren’t anything like what we thought they’d be. A blip in federal funding means we have to sell private assets. We have to take advantage of this window to unload. Retirement funds being led to the slaughter.
