When does hard data catch-down?
April 25, 2025
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–Yields fell Thursday with 10s down 8 bps to 4.303% (close to EFFR of 4.33%). Seven year auction was solid. Cleveland Fed President Hammack said in an interview that the Fed could ease in June “if we have clear and convincing data”. June FOMC is the 18th, 7.5 weeks away. Later in the session Waller said he could support an ease if tariffs cause unemployment to rise (more likely in second half). The market has embraced the ‘wait-and-see’ approach, with SFRM5 up only 1.5 bps to 9587.5 and SFRU6 (the peak contract on the strip) at 9684.0, up 9.0 on the day. The red pack (M6, U6. Z6, H7) settled 9680.875 (+8.75), consistent with a FF target range of 3.0 to 3.25%.
–Large midcurve SOFR trade: -100k 0QM5 9681.25/9700cs vs +100k 0QU5 9700/9725cs for 1.0 to 1.25. Settles: SFRM6 9680.5, cs settled 7.0. SFRU6 9684.0, cs settled 8.25. This was a roll, exiting the June to buy Sept, again reflecting the idea of a slow-play Fed. If the trade were a package, it would work best with SFRM6 expiring just under the lower call strike of 9681.25 (essentially where it is now) and SFRM6/U6 calendar spread declining a bit, that is, SFRU6 rallying.
–Overall activity was quiet, but there were a few SFRM5 call spreads I’ll mention. First, +10k SFRM5 9600/9631.25c 1×2 for 0.75. Settled 7.0 and 3.25 so 0.5. If hard data crumbles and easing is moved forward this is a good trade. On Wednesday we get Q1 GDP and PCE prices, and on Friday NFP (expected 130k). Also, a buyer of 37.5k SFRM5 9656.25/9681.25cs for 0.75. Settled 2.25/1.50, looks like a short was rolled to higher strike. SFRM5 options have 50 days until expiration, and 9681.25, nearly 100 bps otm are still 1.5!
