Would you care to take this outside?
September 9, 2025
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–Surprising outperformance by the long bond, with the 30y yield down 8.2 bps to 4.689% in front of this week’s auctions. By comparison, 5s fell just 1.4 to 3.568% and 10s -3.8 to 4.046%. Within a week, since Tuesday 2-Sept, the 30y yield has plunged from 4.962 to 4.689 or over 27 bps. The last rally of similar magnitude and time frame was just before Liberation Day (4.722) to April 4 (4.411) or 31.1 bps. (Yields immediately bounced from there). Strongest contracts on the SOFR strip were reds, with the pack +2.875 to 9712.625. I’m tempted to short bonds, but we all know the admin is hell-bent on getting mortgage rates lower and Bessent, bless his heart, can apparently shed his soft-spoken demeanor when he wants to make a point:
https://www.politico.com/news/magazine/2025/09/08/scott-bessent-bill-pulte-blowup-00549956
–FFF6 which prices end-of-year EFFR settled +1.5 at 9639.5. Current is 4.33% equating to price of 9567.0, so Jan has 72.5 bps priced, almost exactly 3 cuts. Today’s BLS benchmark revisions to the establishment survey expected to show a loss of around 700k jobs. Three-year $58b auction as well.
–Protective downside trades in case the Fed doesn’t cut as much as is currently being priced are still prevalent. For example, yesterday a buyer of 50k SFRZ5 9618.75/9606.25ps for 2.5 (settled there ref 9638.5). In case the Fed is forced to slash rates, this trade went through: 0QU6 mullet 9700/9750/9800/9850 c condor 1x1x2x2 20k sold at 8.5 (roll up). The underlying on this trade is SFRU7 which settled 9710; the options expire on 11-Sept 2026 (one year away). The 9700/9750cs settled 20 and the 9800/9850cs settled 5.5. In comparison, SFRU6 settled 9706.5, or 3.5 lower than U7. The regular 9800/9850cs expiring 11-Sept-26 on SFRU6 (same as mullet) settled 4.25. If I was forced to buy one or the other I would choose SFRU6 cs, because if the global economic wheels derail, I think U6 will go up faster.
–NFIB Small Biz Optimism improved, released this morning at 100.8. I am leaning toward a more negative assessment of the economy, but this is one of the key findings of the NFIB survey:
“In August, there was a notable improvement in overall business health. When asked to rate the overall health of their business, 14% reported excellent (up 1 point), and 54% reported it as good (up 2 points). Twenty-seven percent reported the health of their business as fair (down 4 points), and 4% reported poor (unchanged)”
