Front end of SOFR curve inverts to new recent low
April 2, 2025
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–To Scott Bessent: the good news is that long end rates are falling. The bad news is it’s because the economy is disintegrating.
–Almost every piece of data is showing a reversal of the election bounce. ISM Mfg interesting. The main number at 49.0 now indicates contraction. But prices paid soared to a new high 69.4. At the same time, new orders are plunging, now at 45.2 (lower than all of 2024). One could be forgiven for this interpretation: Purchasing managers are BUYING now and securing supplies to beat the tariffs. But they’re not going to be selling as much. Will likely get caught with unintended inventory. And THAT is recessionary.
–It’s tariff day. Also, ADP expected 120k. Capital Goods Orders non-defense ex-air -0.3 last (hopefully turn positive). Fed’s Kugler gives a speech this afternoon on Inflationary Expectations and MonPol. That speech might be overshadowed by, ahem, other factors. Headline just out this morning says *CHINA SAID TO RESTRICT COMPANIES FROM INVESTING IN THE US.
–Yesterday featured curve flattening. 2’s fell 4.5 bps to 3.865% while tens dropped 8.7 bps to 4.157%. Twos are nearly 50 bps below current EFFR of 4.33. New low inversion in SFRM5/M6 one-year calendar at -67.5 (9594, +2.0 & 9661.5, +6.0). Early last September, following the yen-carry debacle, going into the first FOMC ease, what was then the front one-yr calendar SFRU4/U5 got as low as -200. (This was of course, before 100 bps worth of easing). By October, the front one-year calendar was SFRZ4/Z5 and that was around -100, rallying into the election to -50. At -67, the current 1-yr spd loosely forecasts 2 to 3 eases. Yesterday’s SFRM6 settle at 9661.5 (and all reds) was the highest since October of last year.
