Eases are still there, just further back
February 12, 2024
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–New recent highs in near SOFR calendar spreads on Friday as back contracts continue to re-price both the timing and magnitude of easing. On Friday, red sofr contracts closed -5.125 at avg price of 9632. SFRH4/SFRH5 calendar settled -132, up 5 on the day (9477.5/9609.5). On Feb 1, the day after the FOMC, the spread settled -160.5. There’s been a lot of talk about the FOMC having 3 cuts priced into the end of this year, and the market having had six or more cuts priced. The March’24/March’25 spread represents a slightly forward one-year period and still indicates 5 to 6 cuts, even though it has rallied somewhat. (Also, while many think of the spread as forecasting the number of eases, it really represents odds of various scenarios related to the timing and magnitude of rate cuts).
–I have attached a chart of the rolling first green SOFR contract. As you can see, recent highs in the beginning of 2023 and again just after the SVB blow-up were around 9740 (high print 9748) and the low in Oct was 9555. The first green (and last red, currently SFRZ5) are the peak contracts on the strip, settling Friday at 9647.5. right around the middle of last year’s range.
–CPI out tomorrow, expected 3.0 to 2.9% yoy from 3.4% last.
