Gliding into the end of the week
January 24, 2025
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–Quiet Thursday featuring lower vol and a slightly steeper curve. SFRH6 remains the peak SOFR contract at 9602.5 (+2 on the day). H’27 9595.5 (+0.5) and H’28 9588.0 (-1.5). Ten-yr treasury yield rose 3.8 bps to 4.635. The 2y yield fell 1.5 to 4.28%. 2/10 spread 35.5 and up another 1 bp this morning. Trump is, of course, calling for lower rates, but it has been apparent from price action that the Fed lowering the funds rate has translated into higher long-end yields as inflation concerns are rekindled.
–Feb treasury options expire today. Obviously some replacement trades, with a buyer of 32k TYJ5 112c with TYK5 112.5c for 21. The April calls settled 8 with a jump in open interest of 47k and May settled 13 with an OI increase of 33k. Deltas are 9 and 13, so an equivalent futures (using OI changes) add of 8500 longs. TY futures open interest added 11k.
–BOJ hiked by 25 as expected. Ueda ‘sees inflation trend settling at 2% around FY 2026’ Not much change in yen or JGB, the latter at 1.223% up a couple of bps. Pre-yen carry volatility 10y JGB had peaked near 1.1%, then fell back to 80 bp in early August tumult. Since September, the 10y JGB yield has pushed higher, from 80 to 1.25%. Over the same time frame US 10y from 3.75 to 4.75%. And we’re all looking for the holy grail of 2% inflation. (He chose poorly).
–News today includes Global US Composite PMI expected 55.6 from 55.4. Existing Home Sales.
