Rates Quiescent
February 19, 2025
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–Yields rose yesterday with tens up 6.8 bps to 4.542%. Going into Friday’s March Treasury option expiration, I had thought TYH5 would gravitate to the 109 strike, but yesterday’s settle was a bit lower at 108-27.
–Vol was again hit. Example: On Friday SFRH6 9600^ was 74.25. Yesterday, 72.0. It wasn’t all that long ago when the first quarterly SOFR straddle trading around 100 bps was much closer than it is now.
Currently:
SFRU6 9600^ is 96.5 ref 9603.5. 570 dte
A month ago, Jan 17:
SFRM6 9600^ 101.0 ref 9600.5. 509 dte
On Dec 19
SFRM6 9600^ 103.5 ref 9599.5 540 dte
On Nov 18
SFRH6 9612.5^ 100.75 ref 9616.5 480 dte
And Oct 18
SFRZ5 9662.5^ 96.5 ref 9662.5 418 dte
What’s the point? Pre-election premium was pumped. Now it’s not. Today we have the FOMC minutes, but since the last meeting many officials including Powell have said the Fed’s in no hurry to adjust rates. The SOFR strip, with prices clustered just above and below 4% (9600) reflects that, as does option premium.
–Housing starts also out today, expected 1390k.
–Gold making a new all-time high this morning, with spot $2944. In the beginning of this year it was 2600.
–One trade of note yesterday, that I simply highlight because it’s being accumulated over time in 15k clips, and is a somewhat interesting disaster curve trade:
Buyer 15k SFRZ5 9700c vs 0QZ5 9750c for 3.5. Settles: 8.0 and 4.75 (3.25). Adding, long ~60k, most bot better, call it 1.0 to 3.5. Both options expire 12/12/25. Chart is both contracts (top panel) and sprd in lower. Trade works best in disaster: Z5 above 9700 (under 3%) on aggressive cuts and hopefully Z5/Z6 spread stays around 0 (or at least above -45).
