Wake up call
September 30, 2025
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–End of month and quarter, with gov’t shutdown looming. Hegseth and Trump mass meeting with the military’s top brass is also today.
–New recent low in 5/30 yesterday at 96.7 (3.628/4.706). Through the month of September, 5/30 has steadily declined from a high of 123.6 on September 2. Similarly, 2/10 was 61.7 on 2-Sept and is now 51.3. Treasury curve flattening has corresponded to weakness in red SOFR contracts. On 8-Sept the peak contract SFRH7 settled at a high of 9716, but the ‘sell the news’ move post-FOMC left SFRH7 with a 9689 settle yesterday, and a slight new high in SFRH6/H7 one-year calendar at -41.5 (9647.5/9689). Somewhat surprising that forward spreads are reflecting lessening odds of easing, even as Powell’s term ends.
On the other hand, there are still option plays going through for lower rates. For example, buyer of 20k SFRH7 9650/9668.75/9687.5/9706.25c condor for 3.75 to 4.0. (3.75s). Sweet spot is between middle two strikes, consistent with a target of ~3.25%, 100 lower than current.
–Tens ended yesterday -4.2 bps at 4.142%, just 5 away from what appears to be new EFFR of 4.09. TYZ5 112-165s.
–JOLTS and Consumer Confidence…expected 7200 from 7181 and 96.0 from 97.4.
–In France, Villeroy said the country needs to deal with its “number one problem now: debt and deficit” as the country risks being “increasingly suffocated by debt that’s getting heavier and is more and more expensive”.
