Peak Taylor
February 10, 2025
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–Front end bore the brunt of selling pressure Friday. Payrolls were mixed with NFP 143k (175k exp) but previous revised up 51k to 307k. Avg Hourly Earnings jumped to 4.1% yoy vs expected 3.8. Unemployment rate fell to 4.0%. The big surprise was U of Mich 1-yr inflation expectations which surged to 4.3% vs 3.3 expected. 5-10 yr inflation expectations also rose to a new cycle high of 3.3%. last seen in 2008.
–Weakest contracts on the SOFR strip were -9, SFRZ5 at 9599.5 and SFRH6 at 9503.5. (Still right around 4%). The two-yr note rose 7.1 bps to 4.277% and 10s rose 4.7 bps to 4.483%. Auctions this week of 3s, 10s and 30s begin tomorrow. New recent lows in both 2/10 at 20.6 bps and 5/30 at 35.1. SFRH5 settled at a new low 9572, at 4.28%, just 5 bps under EFFR at 4.33%. SFRM5 settled new low at 9583 or 4.17%. All SOFR contracts from SFRU5 (9593) to SFRU9 (9589.5) are within 10.5 bps of 4%. The peak contract is now SFRU6 at 9606.5. Easing hopes continue to be squeezed out (though there was significant buying of call spreads last week).
–Powell in front of Senate tomorrow. Most worrisome for the Fed are increases in inflation expectations.
–Peak Taylor as Chiefs were destroyed. Cracks were already showing. Mag7?
