5% 2-year and SFRZ4
April 26, 2024
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–Bank of Japan sat on their hands and now $/yen is above 156
–US PCE prices out today, m/m headline and Core both expected 0.3 from 0.3 last. Yoy expected 2.6 from 2.5 last and Core 2.7 from 2.8. Yesterday’s higher than expected core price deflator in the GDP data, at 3.7%, sent yields higher, with tens +5.2 bps to 4.704% and thirties +3.6 to 4.818%. Twos ended at 4.995%.
–New highs in near SOFR calendars as the easing goalposts are moved further away. SFRM4/SFRU4 settled -13.5 (9471/9484.5). Last month this spread was below -30. SFRM4/SFRM5 settled -64, up 6.5 on the day (9471/9535). SFRH5, M5, U5 were weakest contracts on the strip, settling -9. Despite the sell-off, there is consistent accumulation of calls: SFRU4 9600c added about 20k, 4.0 paid, settled 3.75 vs 9484.5. SFRZ4 9600/9700 cs 5.5 to 5.75 paid for 25k, settled 5.25 vs 9500.5 (4.995%,same as 2y). In SFRZ4 calls, these two strikes have the most open interest at 320k and 348k. 100 bps out of the money with 232 days until expiry. SFRZ4 futures have the most open interest on the strip, at 1,187,636.
–Stocks surged on MSFT and GOOGL results, more than reversing the early tumble associated with inflation worries.
–CME introducing new credit products. Is the timing terrible (because there’s no such thing as a credit spread anymore) or is the timing perfect, like just before covid? In any case, it’s a welcome development given the lack of a credit component in SOFR as opposed to the discontinued euro$ contract.
