New high SFRZ3/Z4 in front of FOMC
September 18, 2023
–The US curve was mixed Monday. The two year yield rose 2.5 bps to 5.06% while tens fell 0.5 bp to 4.317%. 2/10 now -74.3. On the SOFR curve, SFRZ3/SFRZ4 made a new high of -94 (9453.5/9547.5) as selling pressure is centered on reds (new contract low settles again in U4, Z4, H5). In front of tomorrow’s FOMC, the market is increasingly accepting ‘higher for longer’. However, SFRZ4/SFRZ5 made a new recent low of -67.0 (9547.5/9614.5). Therefore, SFRZ3/Z4/Z5 fly is making a new high of -27. Again, it’s the 3rd, 4th and 5th SOFR contracts that are weakest. My view is that Z4 is in for a bounce post-FOMC as open interest changes and implied vol do not seem to confirm a move to new lows (open interest is not increasing and vol slightly lower on new lows). We’ll see what Powell has in store for us; clearly the GDP growth estimates must be revised higher for 2023 and 2024.
–For context on SFRZ3/Z4, the high just after SVB on March 15 was -56, and the subsequent low in July was -162.5. In terms of vol, SFRU4 9525^ was over100 a week ago when atm. Settled yesterday at 95.75 even as the contract has moved to 9514.5. The 9512.5^ settled 92.5 yesterday.
–20y auction today. At futures settle the wi was 458/457.5.
–So much for re-filling the SPR sub-$70/bbl. CLX3 settled 90.58, was 90.90 late yesterday and prints 91.35 this morning. We can always sell more bonds at low rates to raise money to buy oil until it comes back to our $70 bid, right?
–A couple of bullet points from Cass Transports yesterday:
- Despite overall growth of the economy, for-hire freight volumes were down 10% in August. See the role that private fleets are playing.
- Total spending on freight is down 25% year over year.
- The Cass Truckload Linehaul Index, measuring linehaul rates only, declined 11.5% in August
