US long rates stabilize, Japan’s surge
May 20, 2025
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–US 30y bond yield popped over 5.03% in a reaction to Moody’s downgrade, but it didn’t stay there long, ending at 4.935% at futures settle (USM5 112-25s). This morning the financial press has jumped all over the surge in Japan’s long end. 10y JGB is up only 1.4 bps to 1.49%, but 20, 30, and 40y are all up about 12 bps to 2.52, 3.082 and 3.557. All have coupons of 2.4%, so the price of the 40y is 77.872. (Unrealized losses…not a problem unless they need to be realized, right SVB?)
–Net changes in US rate futures were small. 2y down a fraction to 3.979% with thirties up the most at 4.935% (+3.8 bps). First three years of the SOFR strip +2 to -0.5. One interesting SOFR option trade (adding), +20k SFRZ5 9600/9562.5ps vs -20k 0QZ 9625/9587.5ps paying 3.5 to 3.75. Settles: 13.0 and 9.25 vs futures Z5 9619.5 and Z6 9664.0. Nice structure to take advantage of the curve roll-down. Currently Z5/Z6 is -44.5, U5/U6 is -69.5 and M5/M6 is -84. Looking at June prices: M5 is 9569.5 (so the strikes on the Dec put spread would be well in the money) and M6 is 9653.5 so the 0QZ strikes would be out of the money. Could anything possibly go wrong? Well, back in March of 2023, calendars did surge (front months rose faster) in the wake of the regional bank crisis. However, all prices went higher, meaning neither put spread would likely end in the money.
–Home Depot missed this morning but the stock is up. Same store sales -0.3% vs expected -0.1%, however in the US same store sales rose 0.2%. Still, 0.2 isn’t anywhere close to matching inflation levels. Today’s news includes Philly Fed Services, which was -42.7 last, sinking to the lowest level since Covid.
