Throw caution to the winds
May 29, 2025
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–Court voids Trump’s tariffs. Tariffs provide tax revenue. US is running a huge deficit. Stocks soar. Isn’t it as easy as just hitting the bid in bonds?
–Here’s a clip from the FOMC minutes:
Significant uncertainties also surrounded changes in fiscal, regulatory, and immigration policies and their economic effects. Taken together, participants saw the uncertainty about their economic outlooks as unusually elevated. Overall, participants judged that downside risks to employment and economic activity and upside risks to inflation had risen, primarily reflecting the potential effects of tariff increases.
–Yields rose yesterday with 10s up 4.5 bps to 4.777% and 30s +3.7 to 4.975%. Oct 2023 high yield in 30s was 5.115%. This morning 30y yield is back above 5% at 5.025% ref USU5 111-07 and WNU5 114-10. Five year auction yesterday went fine with a yield of 4.071%. Seven year today. News includes Q1 GDP revision and Jobless Claims, expected 230k.
–Buyer yesterday of 35k SFRM5 9568.0. Settled there with OI +74k to 1.468m. Total open int in SOFR is 11.3 million, Since 2023 total SOFR OI has ranged sideways between 9.5m and 11.4m, with large drops at each expiration, followed by a climb back towards highs. No growth, though I am not counting options. I guess there’s no need to hedge any new risk. Peak on the SOFR strip is Z6 at 9668.5. SFRU6, Z6, H7, M7 are with 5.5 bps, 9663 to 9668.5 or around 3.375%. Terminal has ranged from about 2.75 to 3.25%.
