Stocks start the week weak
March 10, 2025
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–Friday’s payroll data was about as expected with NFP 151k and the Unemployment rate up 1/10th to 4.1%. However, U-6 jumped 0.5 to 8.0%. Then year yield rose 2.9 bps to 4.315%.
–JOLTS tomorrow expected 7665k from 7600k last. The high in 2022 which preceded peak CPI of 9.1 by a few months was 12182k, low last year 7372k. FOMC is a week from Wednesday, so thankfully we’re in the blackout period. However, President Trump does, on occasion, make an unexpected comment that throws the market for a loop.
–US auctions 3s, 10s and 30s starting tomorrow. As of now, equity market weakness seems to be supporting fixed income. As of this writing on Monday morning, ESH is -66 at 5710.
–Truflation index down to 1.4%. Perhaps there’s an ‘overshoot/undershoot’ aspect to the data, but the high in June of 2022 was 11.6%. This as we await CPI on Wednesday, expected 0.3, with yoy 2.9 (from 3.0) and Core 3.2 (from 3.3).
–Large trade Friday appears to be exit seller of ~50k SFRU5 9625c at 24 covered 9525.5 to 26, or synthetically down to 47 in the straddle. SFRU5 9625^ settled 48.0. Friday is the last day for MARCH sofr options. Next week September will be trading in the second quarterly slot. ATM March midcurve straddles are all 14.5 to 15.
DETOX
March 9, 2025 – Weekly Comment
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They tried to make me go to rehab, but I said “No, no, no”
Yes I’ve been black, but when I come back, you’ll know, know, know
–Amy Winehouse – Rehab
“…the market and the economy have just become hooked; we’ve been addicted to this government spending. And there’s going to be a detox period.”
–Treasury Sec’y Scott Bessent on CNBC Squawk box interview.
The lines just prior to the bit above: “…could we be seeing this economy that we inherited, starting to roll a bit? Sure. There’s going to be a natural adjustment as we move away from public spending to private spending”. Bessent and others have said the process will not be linear.
We’re going into rehab.
Momentous policy shifts across the globe necessarily come with massive capital shifts.
A recap of some of the week’s big news:
While it doesn’t appear as if government lay-offs have yet been captured in payroll data, “U-6* [under-employment rate] up 0.5% to 8%, largest one-month increase (excluding Covid) since 2009 and 2001 recessions; now 1.5% off low.” (Chris Long on LinkedIn). Headline Unemployment rate was up 0.1 to 4.1%. Both Powell and Bowman indicated a subtle shift in the Fed’s focus to the labor side of the dual mandate, rather than inflation.
SPX is down just over 6% from the high, and fell 3.1% this week. NVDA alone has shed nearly $1 trillion in market cap from the high in January. NDX is down 8.9% from the high. Are retailers foreshadowing a ‘reverse wealth effect’? COST -8% this week. TGT -7.3%. BBY -11.7%.
Atlanta Fed’s GDP Now for Q1 currently stands at -2.4%. Go back to Feb 19 and just change the sign, it was +2.3% just over two weeks ago!
The economy is slowing under the haze of uncertainty. Huge move in German bunds this week as Merz promises to do ‘whatever it takes’ to ramp up defense spending. Ten-year yield in Germany exploded by 43 bps to 2.836% even as the ECB (as expected) cut rates to 2.50%. EUR surged from 1.0378 last Friday to 1.0874. As an aside, @GlobalMktObserv shows that German GDP share of the global economy has halved in the past three decades, from 8.4% in 1990’s to an all-time low of 4.3% now. Hand-in-hand with Greta Thunberg and the green energy agenda. This week’s pivot has to be good for uranium/nuclear. Defense mfg requires energy apart from intermittent winds.
From my note last week: Chart above is EUR/JPY. I can’t help but feel that a large downside move is near. Then I wonder if perhaps Europe makes a U-turn… Perhaps huge investments in defense/tech are around the corner. Could Europe’s manufacturing base become rejuvenated? [EURJPY rallied from 156.27 to 160.36]
One other thing worth mention is a BBG podcast with Dawn Fitzpatrick, Soros CIO. The title is: ‘Investors Underestimate Trump’s Tolerance for Stock Selloff’. A couple of interesting notes: She says, “…what you can’t control is consumer confidence and corporate confidence, and I think that is what is falling off a cliff right now.” No mincing words there. She also says, because of US and European bond issuance, “…one of the things we might see, and this isn’t going to happen tomorrow, but I think it could happen in the next 12 to 24 months is a failed auction out of Europe.” Cites UK and France as most vulnerable. Other insightful comments on private equity and credit near the end. Well worth a watch. 17 minutes.
https://www.youtube.com/watch?v=Qv4qPPj5wI4
In the US rates popped from the year’s lows made last week. The curve steepened. 2s nearly unch’d at 4.00%, 5s +6.8 bps to 4.094%, 10s +8.5 to 4.315% and 30s +10.2 to 4.615%.
Rolling SOFR red/gold pack spread (2nd to 5th years) posted a new high for this year at 31.625 bps. High of the past three years was just under 41 bps in the wake of the Sept FOMC cut of 50 bps. This spread reflects renewed easing expectations – If the Fed is going to cut, short rates will fall faster than long rates. I suspect tens will chop around 4.20 to 4.40 for the next week or so. Ended Friday 4.315%.
This week on Thursday (13th) the Fed releases Z.1 flow of funds report for Q4. The financial press focuses on Household Net Worth. SPX on 9/30/24 was 5762. On Dec 31 it was 5882, up 2%. Interestingly we’re right back to end-of-Q3 level with Friday’s close 5770. Real Estate is always marked higher, though properties for sale in markets like Las Vegas and Nashville are exploding. From Melody Wright: “These 7 [metros] had negative [price] YOY sales per Redfin and an increase in inventory of greater than 20% YOY: Las Vegas, Tucson, Sacramento, Nashville, Austin, Dallas, Los Angeles”
On the week SFRM5 +1 at 9596.5. M6 -0.5 at 9643.0, M7 -8.0 at 9633.5, M8 -12 at 9621.0. Back end responding to German spillover, supply (US auctions 3s, 10s, 30s this week). Remember the guy that kept buying SFRZ5 9700c vs 0QZ5 9750cs for 2 to 3? Settles 15.0 vs 9632.5 and 11.5 vs 9640.5. But…it’s likely the same trader that had rolled his Z5 9700c to U5 9650c. Those settled 14.75. I think he mostly took in 0.5 on the U5/Z5 switch. U5 9650c have 250k open. 0QZ 9750c have 93k open. Largest trade Friday was a sale of over 50k SFRU5 9625c at 24.0 covered 9525.5 to 9526.0, 50d. Settled 21.25 vs 9619.5. Exit trade, OI down 43k in calls and 15k in futures.
CPI on Wednesday expected 2.9% yoy vs 3.0 last. Core expected 3.2% from 3.3%. Remember, the Fed is shifting focus from inflation to labor. Tuesday’s JOLTS might be just as important as CPI (expected 7665k from 7600k). Low last year 7372k. I wouldn’t be surprised if it is lower than that.
OTHER THOUGHTS, TRADES
My bias is to buy red sofr contracts on pullbacks. That opportunity could come this week. SFRM6 (9643) and U6 (9642.5) have been peak contracts on the SOFR strip and had powerful rallies since mid-February. For example U6 went from 9603 on 2/18 to 9649.5 on March 4. Could easily see a pullback towards 9620 to 25.
Looking at broken flies in Short July midcurves. March FOMC is almost certain to be a hold. Next meetings are May 7, June 18, July 30 and Sept 17. July midcurves expire July 11, SFRU6 underlying. July FF, FFN5, is close to being a ‘clean’ month. 31 days in July, FOMC is 30-July. The contract settled 9594.5 or 4.055%, reflecting one 25 bp ease. Current EFFR is 4.33% (and FFH5 settled exactly at 9567.0). One cut is 4.08% or 9592.0.
0QN6 9662.5/9687.5/9700c fly settled 4.5. 0QN 9687.5/9718.75/9737.5c fly settled 2.75. The reason I favor broken flies is that an unexpected event could shift rates sharply lower; broken flies at expiry would still show a profit. I would like to buy a bit cheaper than settles.
| 2/28/2025 | 3/7/2025 | chg | ||
| UST 2Y | 399.5 | 400.0 | 0.5 | |
| UST 5Y | 402.6 | 409.4 | 6.8 | |
| UST 10Y | 422.9 | 431.5 | 8.6 | wi 432.2 |
| UST 30Y | 451.3 | 461.5 | 10.2 | wi 461.7 |
| GERM 2Y | 202.5 | 224.7 | 22.2 | |
| GERM 10Y | 240.6 | 283.6 | 43.0 | |
| JPN 20Y | 202.7 | 223.1 | 20.4 | |
| CHINA 10Y | 177.8 | 184.5 | 6.7 | |
| SOFR M5/M6 | -48.0 | -46.5 | 1.5 | |
| SOFR M6/M7 | 2.0 | 9.5 | 7.5 | |
| SOFR M7/M8 | 8.5 | 12.5 | 4.0 | |
| EUR | 103.78 | 108.34 | 4.56 | |
| CRUDE (CLJ5) | 69.76 | 67.04 | -2.72 | |
| SPX | 5954.50 | 5770.20 | -184.30 | -3.1% |
| VIX | 19.63 | 23.37 | 3.74 | |
| MOVE | 104.46 | 104.41 | -0.05 | |
U-6 is Total Unemployed, Plus All Persons Marginally Attached to the Labor Force, Plus Total Employed Part Time for Economic Reasons, as a Percent of the Civilian Labor Force Plus All Persons Marginally Attached to the Labor Force (U-6)
Payrolls & Powell
March 7, 2025
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–Payrolls today expected 160k from 143 last. Unemployment rate expected 4.0%, unchanged from last. Powell speech on the Economic Outlook at 12:30.
–Midcurve March SOFR options expire in one week. 0QH5 9643.75^ settled 20.25 (ref 9643.5), quite high for a one-week period, but not an easy sale given the backdrop.
–Yesterday’s action was dominated by weakness in equities, SPX -1.8% and Nasdaq Comp -2.6%. There’s plenty of chatter about oversold conditions, 200 day moving averages, bear market bounces. However, the broader geopolitical environment is undergoing a massive generational shift, necessarily impacting capital/investment flows. For now, uncertainty is restraining risk appetite. Short-term technical considerations and economic data are just noise. I’m not saying that equities necessarily have an abrupt shift lower, just open to that possibility in a broad spectrum of scenarios. Crashes don’t occur from highs, but rather from lows. In the first two years of Reagan’s first term, SPX fell nearly 30%.
–Yesterday Waller rejected the idea of a March ease, yet April FF still settled 9570 or 4.30%, 3 bps of premium to the Fed Effective of 4.33. Waller did add ‘there’s nothing wrong with a forecast of 2 rate cuts this year’. July Fed Funds settled +5.5 at 9599.5 or 4.005%. So FFN5 has more than one ease priced, with three FOMC meetings before-hand: March 19, May 7 and June 18.
“Bessent says he will pursue reform of the enhanced SLR ratio to prevent it from acting as a binding constraint – to improve Treasury market intermediation” (Nick Timiraos). Translation, we’re going to need to find buyers for all these bonds: the big banks. TBTF banks siphoned a lot of low cost deposits post-SVB, so even though repo rates presently indicate negative carry, the big banks have plenty of cushion.
–One notable pre-NFP trade: buyer of 50k FVJ5 108/108.5cs 8.5. Settled 10.5 ref 107-2575. Curve was again steeper with red SOFR contracts to deferred making new highs. SFRM5 +5.0 9600.5, M6 +1.5 9646 (peak contract), M7 +0.5 9637.0, M8 -1.0 9624.5.
So, SFRM5/SFRM6 1-yr calendar is NEGATIVE 45.5 in expectation of lower future rates, while SFRM6/M7 is POSITIVE 9 (new recent high).
The surge in German bund yield (40 bps this week) has spilled over into the US curve. US 2y FELL 2.1 bps to 3.965% while 10s ROSE 2.3 bps to 4.286%.
Global bond rout
March 6, 2025
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–The on/off uncertainty inspired by the current administration appears to be resolving with risk assets paying the price. Stocks starting off on the back foot with ESH5 currently in the red about 66 points near 5785, down about 1.2%. Of course, less than stellar earnings also playing a part. The proximate culprit is a global bond sell-off led by the German bund. On Friday Feb 28, the yield was 2.40%. This morning, going into the ECB and a European emergency summit on defense/Ukraine, it’s 2.85%. ECB expected to cut 25. German 2/10 was 39 bps on Friday, now 63. I saw a clip by Doomberg expressing skepticism that Europe’s grand defense plans have much hope of getting off the ground, due to the limiting factor of not enough (green) energy.
(Example of poor earnings: MRVL, a chipmaker, down 15% this morning).
–ISM Services and Prices yesterday both higher than expected 53.5 (52.5 exp) and 62.6 (60.4). ADP was just 77k vs expected 140k going into tomorrow’s payrolls. NFP expected 160k. Largest trade yesterday was in TYK5 113.5 calls, with a total volume of 254k! Open interest fell 50k. Initial trade was a block sale of 85k at 21 covered 111-035, 22 delta. More sales followed down to 12.5k at 19 covered 111-025. Over 100k on the day. Huge buying over the past couple of weeks in lower strike TYK calls has reversed. TYM last price 110-21 vs 111-025s.
–Ten year yield ended at 4.263%, up 5.3 bps on the day. As of this note on Thursday morning, 10y yield is 4.296%. Curve a bit steeper at the close, with 2s up only 3.1 bps to 3.986. SOFR strip also steeper as bund weakness permeated the entire interest rate spectrum. SFRM5 -2.5 at 9595.5, M6 -4.0 at 9644.5 (now peak contract on the strip), M7 -7.5 at 9636.5 and M8 -8.0 at 9625.5. Worth noting is new high in yen, with $/yen now 147.91. The aggressiveness of the fall in $/yen doesn’t match what was seen in early August but the absolute level is similar. On Aug 1, low was 148.51, by Aug 5 it had plunged to 141.70.
‘There’ll be a little disturbance but we’re ok with that’
March 5, 2025
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“a little disturbance” is the only thing I saw regarding the Trump speech last night, and for once, he seems to be prone to “a little” understatement.
–Wild price action across markets. This morning CLJ5 is 67.08, down 1.18, right back to Nov and Dec levels from a high near 78 in mid-Jan. Long end of the treasury market is lower after reversing from new highs yesterday. (e.g. USM5 current 117-25 after a high 119-18 yesterday). German bund remains pressured after plans to ramp up defense spending. German 2/10 was 29 at the start of the year and now 52 bps. 10y bund yield 2.68%, testing the high of 2024 (2.69). The high in 2023 was just a shade under 3%.
–Treasury curve steeper yesterday. 2y down 2.5 bps to 3.955% with 10s +3 bps to 4.21%. 5/30 in US made a new recent high at 51.4, up 4.2 bps on the day. SOFR strip tells the same story: Near calendar spreads at new lows as reds led on the upside, spreads from reds forward made new recent highs, as blues and golds were weakest. Selected settles: SFRM5 +1.5 at 9598, M6 +3.5 at 9648.5, M7 -1 at 9644 and M8 -3 at 9634. M5/M6 at new low -50.5. M6/M8 at new recent high 14.5; high in January was 21.
–May FF saw renewed action. A couple of weeks ago, buyer of 110k for 9571. Exited mostly at 9573.0. Yesterday he jumped in again, buying 42k at 9577 and 10k at 77.5. Settled 9577. If Fed does NOT go in March but does ease 25 at May 7 FOMC, then FFK5 should settle 95.864. So, assuming March is dead (and it’s most certainly not!) the buys of FFK at 77 are about 50/50… 9567 is no ease, or nearly 9587 on 25 cut in May.
–Early Tuesday morning (Asian hours) there was a block sale of 78k TYM5 111-19, reportedly the largest ever. Open interest fell 124k yesterday, so appears to be profit-taking. Yesterday settlement was 111-08.
–A couple of trades to highlight: in SOFR a new buy of 60k 0QM5 (june midcurves) 9700/9750cs for 7.25 to 7.5. Settled 6.0 ref 9648.5 in SFRM6. There has been large buying of May TY calls. Yesterday a seller of 32k TYK5 112.5c vs buying 35k TY wk4 114c. Settles 40 and 7. Open int down 18k in May and +35k in week-4. TYK options expire 25-April; the calls had 33 delta. Week-4 calls have only 10d, and expire 28-March. So the wk-4 expire 4 weeks earlier; looks like he took some money off the table but kept some tail upside in case the wheels come off.
–Yesterday I had mentioned that BBY and TGT earnings might give clues on the health of the consumer. Both companies indicated little growth in sales going forward (negative in real terms). BBY -13.3% on the day. TGT -3.0%.
Weak data
March 4, 2025
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–ISM Mfg weak. 50.3 vs 50.7 expected. Prices hit a new recent high at 62.4. New Orders and Employment both sub-50 48.6 and 47.6.
–Buyer early: 40k TYK 112c for 43. Settled 56 vs TYM5 111-13 (new high for the move). Cash 10y yield closed at 4.18, down 4.7 bps on the day and below the 50% retracement of September’s (pre-FOMC) low of 3.62 to January 14 high of 4.794. Halfway around 4.21. The 5y joined 2s in a sub-4% yield, with fives ending at 3.991.
–Atlanta Fed GDPNow for Q1 down to -2.8% from -1.5%. Yes, part of it is import/export data but I believe uncertainty is taking a toll on growth.
–OPEC agrees to oil output increase. CLJ this morning at new recent low, down 0.60 on the day at 67.77, which is around $10/bbl lower than the high made in early January as yields also made new highs.
–Retail reports today and Thursday may provide clues on health of the US consumer. TGT and BBY today pre-open (both charts already indicate weakness). COST, M and KR Thursday.
–Marginal new lows in near SOFR calendars. SFRH5/H6 now -68.5, down just 0.25 (9572/9640.5). Both H5/M5 and M5/U5 three-month calendars are nearing -25, the former at -24.5 and the latter -22.5. Market is starting to price more aggressive easing by the Fed.
New low treasury yields for 2025, new high vol
March 3, 2025
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–Trump announces Crypto Strategic Reserve, causing bitcoin to jump 10%. Precious metals also rebounding, but in a much more muted way. GCJ +34.50 to 2883, up 1.2%.
–Friday featured new low yields for this calendar year, with tens down 5.6 bps to 4.227%. 2y now just under 4% at 3.995 (-8.3 bps). PCE inflation data about as expected +0.3 with Core also +0.3 m/m. Core yoy at 2.6% matched the low of last year at 2.6%, the low of this cycle. Real Personal Spending was -0.5%, reflecting concerns about consumption going forward. Treasury vol at new high for the year. On Friday 2/21, TYM atm 109.5^ was 2’31. On Friday 2/28, the atm 111^ is 2’48.
–Today’s news includes ISM Mfg expected 50.8 vs 50.9 last. New Orders expected 54.6 from 55.1. New Orders bears close scrutiny as some reports indicate that orders are slowing significantly on policy uncertainty. Atlanta Fed GDP Now plunged to -1.5% for Q1. However, NY Fed Nowcast is still 2.9%.
–On SOFR strip, new lows in near calendars. SFRH5/H6 settled -68.25 (9571.25/9639.5) with H6 along with Z5 being the strongest contracts Friday, +10.5. (Z5 at 9631.5 or 3.685% vs Fed’s year-end projection of 3.9%). Near contracts being held down as easing is pushed back in time somewhat. For example, the guy who bought 100k FFK5 at 9571 the previous week continues to exit with a small profit, selling 60k at 9573.0 (settled 9574.5).
–Headline just on BBG: German 30-yr bond yield rises 10 bps on defense spending.
Bessent in the Driver’s Seat?
March 2, 2025 – Weekly Comment
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Yields at new lows for the year. On the week, 2s dropped 19 bps and are now just under 4%. 5s down almost 23 at 4.026%, 10s down 19 at 4.227%, now 10 bps under the Fed Effective rate of 4.33%. The thirty-year fell 15.3 bps to 4.513%.
A lot of people are asking what’s driving it. Standard broker fallback: “More buyers than sellers.” This one with a twist. There’s a huge buyer inhaling May TY calls. His name is Bessent. I am joking about Bessent, though he had clearly articulated that the administration wants long rates down. On Tuesday there was a new buyer of 100k TYK5 111.5c up to 0’40 (settled 0’62 on Friday vs 111-03. On Wednesday, a new buyer of over 100k TYK5 113.5c for 0’19 covered 110-20 with 17d. On Friday these strikes settled 0’62 and 0’25 with TYM5 111-03. Implied vol ended the week at a new high for this calendar year. MOVE at 104.46, having been sub-84 a week and a half ago on Feb 19. (Spike high in MOVE pre-election was 136). May treasury options expire 25-April, after quarter-end and after April tax day, but before May 7 FOMC. Quarter-end may be interesting to see if repo spikes (might provide clues to ampleness of reserves). It’s also the end of Japan’s fiscal year.
Support for treasuries can be pegged to several factors. Job cuts in government and budget cutting in general. Steady inflation data. Slowing economy. Vulnerable equities. Though monthly PCE prices were +0.3 for headline and core, yoy Core at 2.6 matched the low of the cycle from last June.
The chart above is 5y US yield. Since Sept 2022, the range is ~ 150 bps, 3.4 to 4.95. Last at 4.02. (around the mid-pt).
On 9/21/22 FF hiked to 3.125 (range 3.0-3.25). Peaked 5.375 July’23. Now 4.375. (~ the mid-pt)
YOY CPI peaked 9.1 June’22. Last 3.0. Low 2.4, expected 3.0 for February (released 3/12).
Post SVB failure, the 5y plunged to 3.3% in May 2023. FF were 4.875%, just about equal with yoy CPI at the time. That is, the 5y yield was inverted to FF & CPI by 150 bps! One could easily make the case that the Fed could cut 25 or 50 by Q4 (to 4.125 or 3.875), which would still likely be well above CPI of 2.5 to 3.2, and 5y yield could hit 3% in a panic situation. Where’s the panic? Perhaps from falling asset prices as the world rebalances away from the US.
I’m not going to get into the Trump/Vance/Zelensky meeting. Unsurprisingly, strong feelings on both sides. But to me, the outcome is unambiguously negative for the eurozone.
Chart above is EUR/JPY. I can’t help but feel that a large downside move is near. Then I wonder if perhaps Europe makes a U-turn. After all, it will be the children of Europe on the front lines. Perhaps huge investments in defense/tech are around the corner. Could Europe’s manufacturing base become rejuvenated?
I’m reminded of a speech made by Sec’y of the Navy Carlos Del Toro on 14-Dec 2023. (As far as I know, first highlighted by Luke Gromen – Forest for the Trees). Excerpt below:
This creates substantial operational and economic risks for the American economy in the event of a crisis or conflict.
Over the past three decades, while China’s comprehensive maritime power has skyrocketed, ours has dramatically declined.
History demonstrates a clear pattern: no great naval power has ever existed without also being a dominant commercial maritime power, encompassing both shipbuilding and global shipping.
It is imperative that we take decisive action to reclaim America’s position as a leading maritime power.
I had read that and thought, hmm, maybe it’s appropriate to have a little exposure to this theme. So I did a little (and I mean a little) bit of research and decided to buy the ADR on Kongsberg Gruppen (KBGGY), a defense company in Norway (missile controls for maritime and air traffic surveillance).
I’m not saying Del Toro’s speech caused this run. After all, gold priced in EUR looks quite similar with a decided acceleration in trend since the start of 2024.
What I do believe is that the Trump administration is causing hard shifts in incentives the world over. Perhaps positive in the longer run for the US, but in the short run, fiscal dominance is receding. For years, the US avoided recession, due in large measure to US deficit spending.
The latest Atlanta Fed GDP Now forecast for Q1 crashed to -1.5%. After recent data, “…the nowcast of the contribution of net exports to first-quarter real GDP growth fell from -0.41 percentage points to -3.70 percentage points while the nowcast of first-quarter real personal consumption expenditures growth fell from 2.3 percent to 1.3 percent.” To those that believe deteriorating economic data will sidetrack Trump’s agenda, my thought is that whenever he’s attacked, Trump’s M.O. is to double down.
Other Thoughts / Trades
On the SOFR strip, over the last week the strongest contracts were June’26 to June’28, +27 to +28 bps. The rally in deferred contracts suggests a slowing economy, with little expectation of forced easing by the Fed (as of yet). Peak contract is SFRU6 at 9644.5, up 27 from the previous Friday 9617.5. This contract is approaching 3.5%. In fact, halfway back from the September high of 9725.5 to Jan 10 low of 9581.5 is 9652.0. Will likely chop around this area going into Friday’s employment data.
Government has been adding 20-25% of jobs over the last couple of years. On Friday, NFP expected 160k from 143k. Unemployment rate still expected at 4.0% same as last month.
| 2/21/2025 | 2/28/2025 | chg | ||
| UST 2Y | 418.5 | 399.5 | -19.0 | |
| UST 5Y | 425.2 | 402.6 | -22.6 | |
| UST 10Y | 441.6 | 422.9 | -18.7 | |
| UST 30Y | 466.6 | 451.3 | -15.3 | |
| GERM 2Y | 210.2 | 202.5 | -7.7 | |
| GERM 10Y | 247.0 | 240.6 | -6.4 | |
| JPN 20Y | 205.3 | 202.7 | -2.6 | |
| CHINA 10Y | 175.0 | 177.8 | 2.8 | |
| SOFR M5/M6 | -29.5 | -48.0 | -18.5 | |
| SOFR M6/M7 | 3.0 | 2.0 | -1.0 | |
| SOFR M7/M8 | 7.5 | 8.5 | 1.0 | |
| EUR | 104.60 | 103.78 | -0.82 | |
| CRUDE (CLJ5) | 70.40 | 69.76 | -0.64 | |
| SPX | 6013.13 | 5954.50 | -58.63 | -1.0% |
| VIX | 18.21 | 19.63 | 1.42 | |
| MOVE | 91.83 | 104.46 | 12.63 | |
Nasdaq and bitcoin more interesting than rates…
February 28, 2025
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–So ends February. At yesterday’s close Bitcoin had fallen to its 200 day moving avg at 81963, this morning it has broken below, for now, with a low of 78225. Nasdaq-100 futures, NQH5, also just pierced the 200 DMA, 20644; traded slightly below this morning but is now slightly above. NDX and CCMP (Nasdaq 100 and Composite) are both above 200 DMA, 20186 and 18346, but the COMP is closer at 18544. The last time these two broke the 200 DMA was August 5 of last year, the culmination of the yen-carry scare. It was a one-day test, and then back to the races. I’m not really drawing any conclusions other than to think it’s reasonable to at least test long-term moving averages. However, I saw someone imply that Nasdaq is leading bitcoin. I would frame it the other way, that bitcoin is the canary. Friend Robert Luxem said on Jan 28: “Looks like my theory that Bitcoin/Crypto has become a 24/7 liquidity ATM for markets worldwide might carry some weight. The Chinese AI Deepseek story hit the tapes on Jan 26th, as well as the market. Bitcoin led the sell-off compared to the S&P Emini contract (blue) and also found the bottom first.” Luxem puts out first-rate analysis of crypto. Lmk if want contact info.
–I simply think that crypto ‘bros’ are likely, at the margin, to be capital constrained. A drawdown shakes them out first, and there’s a marginal (or margin call) spillover. Seeing this to a very small degree in betting stocks, for example Draft Kings has more than erased its mid-month earnings pop. BETZ is a gaming/betting ETF, and it too, appears to be under recent pressure (though well above 200 DMA). Just watching as a possible proxy for waning animal spirits… [disclosure I’m long DKNG puts]
–Ten-yr yield ended yesterday at 4.283%, up 3.4 bps, but looks to close out the month closer to 4.25%, the low for this calendar year. The most recent low was early December at 4.155%. Today we get the Fed’s preferred measure of inflation, the one that strips out any useful and necessary products whose prices have risen. Just kidding, it’s PCE prices, expected m/m 0.3 both headline and core. Yoy expected 2.5% from 2.6% last, with Core expected 2.6% from 2.8%. In this cycle, the lowest yoy Core was 2.63% for June ’24.
–All near SOFR calendars had made new lows Wednesday, but had small stabilizing rebounds yesterday. SFRH5/H6 still the most inverted at -59.25 (9569.75/9629)
Pause (in the TY rally) that refreshes
February 27, 2025
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–New buyer of 105k TYK5 113.5c: 19 covered 110-20 with 17d. Settled 22 vs 110-28+. On Tuesday, buyer of 100k TYK5 111.5c up to 40, settled 55 yesterday. Cash yield at futures settlement was 4.249%, down 4.7 bps on the day, and now well below the SOFRRATE and EFFR of 4.33%. It becomes more difficult to see domestic TBTF banks sopping up treasury supply at negative carry, though forward rates on the short-term curve are more like 3.75% (for example, SFRZ5 settled 9622.5).
–TYM5 has rallied 6 straight sessions, from 108-265 on 18-Feb to 110-285 yesterday. As the attached chart shows, implied vol has confirmed the move. Open interest had also surged, though we’re now more than halfway through rolls from March to June contracts and OI (aggregate) fell yesterday in TY by 250k. As of this morning TYM5 trades 110-15, a small, refreshing, pullback.
–In my opinion, the market is trading as if a disaster of some sort is brewing, but the vol chart isn’t quite confirming a breakout. All near SOFR calendars have made new lows as forward contracts once again telegraph lower rates. Front contracts are anchored as many Fed officials have repeated they’re in a ‘wait-and-see’ mode with respect to inflation. (PCE prices released Friday). As of yesterday’s settles, it feels like we could start getting some comments from ‘experts’ that the FED IS BEHIND THE CURVE. Cue a somber Jeremy Siegel to plead for emergency cuts. “NVDA didn’t rally after yesterday’s results! PANIC”
–On the SOFR strip the peak contract moved back a slot to SFRZ6 at a price of 9638 or 3.62%. Most-inverted 1-yr calendar is still SFRH5/H6, which fell 3.25 bps to a new recent low -60.75 (9570.25/9631). For the first time this calendar year, the red/green pack spread inverted. It had been as high as 11.5 in mid-January. From yesterday: red pack avg (2nd year) 9635.5 and green pack (3rd year) 9636.25.
–My interpretation is that the market sees sluggish growth ahead, which the Fed will not respond to unless inflation is falling. After running a 7% deficit to GDP last year, the deceleration in gov’t spending necessarily creates an adjustment. Initially there was a sense of euphoria that the private sector would easily plug the hole. That hope seems to be dissipating.
–Mexico and Canada tariffs apparently being instituted on April 2. Europe coming as well.. Washout in bitcoin is continuing. Yen has rallied vs USD since the start of the year. Seeing a small pullback today with $/yen 149.90. Early Jan was 158.50.
–RIP Gene Hackman. Not his best role, but here’s a clip:
