Yields grinding lower
September 12, 2025
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–Jobless Claims yesterday at 263k highest since 2021. CPI higher than expected 0.4% vs 0.3 exp. However, yoy 2.9 as expected. FFF6 post data print 9644, settled 9641. A price of 9642 is 3.58% which is exactly 75 bps below the current EFFR of 4.33%. I.e. 3 cuts by year end. The 10y yield tested the Liberation Day low of 4.00%, ending the day at 4.013%, down 2 bps.
–Huge volume in FFV5 of 479k, settled 9595. By comparison, SFRU5 was 732k and SFRZ5 817k. Sept SOFR options expire today, with SFRU5 pinning 9600 (9598.75s) and SFRU6 pinning 9700 (9700.5s).
–2/10 treasury spread at futures settle was 49.6, a new recent low (3.527% and 4.013%). Likewise, red/gold SOFR pack spread settled at a new low of 43.5, down 1.75 on the day. I had been surprised by SOFR calendars from reds forward continuing to edge to new lows, but a BBG story yesterday shed light, noting that PIMCO has been exiting:
But Ivascyn said the firm [PIMCO] has been dialing down its
exposure to the so-called steepener trade, anticipating that
it’s no longer quite a sure thing — even though it would appear
poised to get another boost next week if the Fed resumes cutting
rates, as widely expected.
“It’s performed so well that our conviction level has come
down,” Ivascyn said in an interview.
My feeling is that a spread like red/blue pack, which settled at a new low of 26.25 (9707.25/9681) is currently cheap, especially if the Fed is forced to accelerate easing. Recent high in the spread was 37.
–One interesting trade: TUZ 104.875/104.50/104.375/103.875 put condor cov 104-15.375 10% paper pays 5 on 45k. Settled 5 vs 104-138. On the Wednesday prior to payrolls, there was (most likely the same) buyer of TUV5 104.5c for 6.5. 104.625c ~4.75 and 104.75c for ~3.75. There have alreadly been some adjustments, but targeting the area from 104-20 to 104-24 seems reasonable. On the opposite end of the curve, a buyer of 50k USV5 111.5p for 1.
–Just a footnote for those who didn’t see from Fed;’s Quarterly Z.1 report:
HouseHold (HH) net worth New High Q2 176 Trillion, up $7T (that can support a LOT of consumption).
Strangely enough HH Liabilities were nearly UNCH’d at 20.98T from 20.80T in Q1. Asset values simply levitate. Always.
Just as point of comparison, in Q2 2020, Net Worth was $119T, so an increase of nearly 50% in 5 years.
