One day til FOMC announcement
Sept 17, 2024
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–As Sept SOFR options have expired, I consider SFRZ4 to be ‘front month’. That is now the lowest quarterly at 9600 or 4%. The peak contract on the SOFR strip has been moving forward and is now SFRH6 at 9719.5. It’s now the 6th quarterly contract; it was the 7th quarterly last week. That spread is -119.5.
–From SFRH6 forward the SOFR calendars are positive, and becoming more so. Price action is indicative of front-loaded easing.
–The lowest 1-yr calendar is now Z4/Z5 at -118 (9600/9718). It was +4 on the day. (U4/U5 is, of course, still listed, and that’s -195, but I don’t consider it to be front any more). There was a huge block buy of SFRH5/SFRH6 at -55.5 in size of 81.5k. Both contracts gained >60k open interest, so new trade. That spread settled -52.5 (9667/9719.5). The difference between Z/Z and H/H is 65.5 which is nearly 1 bp of negative roll (for the buyer) for each trading (not calendar) day. However, perhaps the spread buy is really focused more on being short the peak contract SFRH6. In that case I am guessing he’s looking for better than a soft landing, perhaps a new surge of economic activity.
–The other large trade relating to SFRH5 was a seller of 100k SFRH5 9675/9750/9775/9850 call condor at 12.0 to 12.25, Said to be a roll-up of 9675/9775cs (20.25s) to 9750/9850cs (7.0s). Open interest was up >90k in both 9750 and 9850 strikes, but surprisingly was also higher in 9675 and 9775 calls by about 40k.
–Treasury yields fell by 2 to 4 bps on a slightly flatter curve. 2y -1.9 to 3.555% and 30y -4.1 bps to 3.934%. Former WSJ Fed whisperer Jon Hilsenrath posted late in the session that he’s now in the 50 bp cut camp. However, FFV4 settled 9507.5, very close to the dividing line between 25 and 50 which is 9504.5.
Retail Sales expected -0.2 m/m from +1.0. Ex-auto expected +0.2 and ex-auto and gas +0.3%
Industrial Production +0.2 and Capacity Utilization 77.9%…post-covid low has been 77.2
