Trump injects risk (who would have thought?)
April 2, 2026
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–Yields ended a bit higher yesterday with 10s up 1.3 bps to 4.322. Green SOFR pack (3rd yr) was weakest on the strip at -3.125, settling 9648.375 or right around 3.5%. Of course, Trump’s address yesterday evening sparked a risk-off environment, with ESM down 1.2% as of this note, and NQM down 1.5%. May WTI (CLK6) has exploded above $107/bbl. USM6 bond contract is printing 112-27, having touched 114-14 on Wednesday morning. Low tick last week was 111-23.
–Data today includes Challenger Job Cuts, Jobless Claims and Trade Balance. I would imagine the longer uncertainty continues the more likely that negative ramifications will hit the domestic economy.
–In early March, SFRZ6/H7 3-month calendar printed as low as -9.5. On 3/27 the high print was 0 and settled yesterday at -2.0 (9637.5/9639.5). Everything is correlated, but this spread perhaps is as good as any to use as a proxy as to whether the energy shock is more inflationary or growth negative. If the spread tends positive, that means the rate on SFRH7 is higher than Z6, a signal that inflation is a problem and Fed may be hiking. As spread tends more negative it’s an indication that the market will look thru the price shock and focus on waning growth which requires easier FFs. Worth a mention is that in 2007 to mid-2008 oil was surging. In fact, in mid-March 2008 front WTI was around 106 (similar to now and on its way to 140). In March 2007 it was around 60. That energy rally did NOT stop the Fed from easing; in Sept 07 FF were 5.25 and by Feb 2008 FF were 3.0%. Of course, financial stability was of paramount concern back then, unlike now.
