Benign CPI expected
February 13, 2024
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–CPI today, expected 0.2 vs 0.3 last, month/month. YOY expected 2.9 to 3.0 from 3.4% last. YOY Core expected 3.7% from 3.9% last. Yields were down marginally on Monday, with 2s, 5s and 10’s down around 2 bps, 10y yield -1.7 at 4.168%. SOFR curve a bit flatter with H4 -1.0 at 9476.5, H5 +1.5 at 9611.0 and H6 +4.0 at 9651.5. Volume was light. Risk is that CPI comes out hotter than expected. Powell has focused on Core Service prices, as have others, which likely require weaker employment data than we’ve been seeing. CLH4 up another 0.69 this morning at 77.61. Big tech stocks losing altitude.
–NFIB Small Biz Optimism out before CPI, expected 92.3 from 91.9. Been in a tight range near the lows for a year and a half, between 92.1 and 89.0. Inflation and labor quality are top issues.
–Constant maturity red/green sofr pack spread edged to slight new recent low -14 bps, but in general has been moving up since a low of -57 in September. Hi on Jan 16 was +1.625.
–Large trade of the day was buying of 0QU4 / 0QZ4 9650 straddle spread for 14.5 to 15, in 20k. These are midcurves on SFRU5 and SFRZ5 which expire this year, on 13-Sept and 13-Dec. Underlying prices settled 9645 and 9651. Straddles at 82.0 and 97.0, sold Sept and bought Dec. The first thing I’d note is that the 0QG4 (midcurve Feb) atm 9612.5 straddle settled at 15.5 ref 9611, with just 4 days until expiry. So when Sept expires, then one might expect Dec to have a lot more time value than 15 bps. However, I am thinking this might be more of a pre-election/post-election play. In any case, the position added about 15k open interest to all strikes. The idea also traded as 0QU4/0QZ4 9600/9700 strangle spread for 14.5. Strangles settled 42.25 and 56.75. Open interest up about 4k in those strikes.
