Back to ‘normal’
August 9, 2024
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–Rate futures declined as the most aggressive easing projections continued to be pared back. October FF settled 9507, -4.5, fully 25 bps off of Monday’s panic high 9532.5. This contract directly prices the Sept FOMC, a price of 9492 represents a cut of 25 and 9517 a cut of 50, so we’re close to midpoint. Ten year yield rose 3.3 bps to 3.999%. Yesterday’s 30-yr auction was soft, with the yield just before cut-off at 4.285, but actual result at 4.314%. However, there was little reaction following the midday sale. At futures settle, the thirty-yr yield was 4.287%.
–Block trade yesterday: TYU4 112c / TYV 116c 1×2 diagonal covered U4 112-24, 30d, 12.5k sold at 25. Settled there with Sept calls 63 and Oct 116c 19. The only reason I highlight this trade is because TYU 112c has the most open interest of any strike, still 135k open after yesterday, and this in-the-money call is being rolled into Oct 116s. Likely a lot more of this trade to come. Note that Sept options expire 23-August, after the Dem convention and right at the start of the Jackson Hole Conference. I don’t see it on the Fed calendar, but I believe Powell will give an address on Friday, Aug 23.
–The peak contract on the SOFR strip has moved forward as easing expectations become concentrated. SFRM’26 is highest at 9678.5, or around 3.25% (under 3% earlier in the week). The near one-year calendars are around -150 bps: U4/U5 settled -149 (9515.5/9664.5) and FFV4/FFV5 settled -161 (9507/9668). I would have previously said these levels represent six [25 bp] rate cuts, but we’re likely to get a couple of 50s.
worked for Venezuela
