When they’re giving you 25, push for FIFTY
August 14, 2025
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–Rate futures bid as Bessent calls for Fed cuts, looking for 50 at the Sept meeting. Current EFFR is 4.33, a cut of 25 would be 4.08 which is a price of 9592.0. Early in the session FFV5 (Oct Fed Funds) traded 9593 (meaning the market is pricing in just a little MORE than a 25 bp cut in Sept). FFV5 settled at 9594.5. Today’s news includes PPI and Jobless Claims…my focus will be on continuing claims which have been steadily rising, last at 1.947m. (Jobs are hard to get). In terms of PPI, oil is again nearing $60/bbl and is at the bottom of 2 month range, Copper tumbled, grains at lows.
–There were 2 dissenters at the last FOMC, Waller and Bowman. If Miran votes that will be three, but I can easily see an internal six/six tie. Clearly, Powell would cut, but there’s a chance it would be a hawkish 25, couched as a simple insurance policy against labor market weakness. Of course, another bad NFP could easily spark 50.
–Large trades continue on SFRU5 calls. Now a buyer of 10k 9625/9637.5cs for 0.25. SFRU5 settled +3 at 9597.0 (NOTE this is above FFV5). Also a buyer of 10k 9612.5/9618/9625c fly for 0.5. Perhaps of more interest would be SFRZ5 pricing and ultimate settle. With current EFFR at 4.33 or 9567, a total of 75 bps between now and year end would put EFFR at 3.58 or 9642.0. FFF6 settled 9632, or 10 bps away, while SFRZ5 settled 9630.5. Of course, the 28-Jan FOMC odds figure into SFRZ5 pricing, not so much FFF6. Clearly, there’s upside room for SFRZ5, especially if the huge option bets in SFRU5 for a 50 bp cut at the 17-Sept FOMC come to fruition. Yesterday there was a buyer of SFRZ5 9618.75/9643.75c 1×2 for 1.5. Not sure I would care for an extra short leg at that strike. Trump has downplayed the outcome of his summit with Putin, but has also threatened serious consequences if there’s no progress. Geopolitical failures could still spur a bid for short dated treasuries & SOFR contracts.
–Reasonable downside play yesterday, buyer of SFRV5 9618.75/9606.25/9593.75p fly 1x3x2 for 0.25. Settled 0.5 vs 9630.5. In my opinion, 9606.25 strike is a reasonable lower limit for SFRZ5 at this point.
–Yesterday, 2s fell 4.4 bps to 3.685 and tens fell 5.7 bps to 4.236, 30s surprisingly strong, down 5.8 bps to 4.826%.
–Interesting clip from Matt Taibbi regarding Trump’s executive order to allow Private Equity in 401ks. It’s the first I have heard about Intel situation. In any case University Endowments are trying to unload PE to pay fines; this is an elegant way to have the retirement system bail out higher ed. Everybody wins?
The order directs the Secretary of Labor Lori Chavez-DeRemer to review and potentially remove the biggest obstacle PE has had in gaining access to 401(k) plans, most notably the plan manager being sued for not performing their fiduciary responsibilities by investing in PE. That’s what happened in 2015 when Intel employees sued the company for what they considered to be lousy returns from PE investments.
–Here’s a clip from DRW (Cumberland) on Linked In: “We’re done talking theory.” Real-time, on-chain financing of tokenized U.S. Treasuries against USDC — executed over a weekend — proves that Digital Asset and the Canton Network blockchain are reshaping markets.
