If neutral is lower, why are real yields going higher
January 14, 2025
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–USH5 contract made a new low 110-25. The low for the front US contract in October 2023 was 107-04. On the cash 30y bond, the high yield in October 2023 was 5.115%. I marked 4.984% at the time of futures settlement USH5 110-27. Worth noting is that the 30y inflation indexed note made a new high (real) yield of 2.603% just edging out the 2023 high of 2.582%. Chart attached. Slight new high 10y treasury/tip breakeven at 246.8 bps.
–Stocks rebounded modestly from early weakness (and follow-thru short cover rip overnight). There were a couple of large outlier trades: Buy of 50k TYG5 116.75c for cab-7. Buyer 12k SFRG5 9668.75/9700cs for 0.25. Disaster insurance; maybe the LA wildfires create focus on the unlikely. Buyer of 10k TYG 106/106.5 put stupid for 17 appears cover. Settled 18 (12 & 6).
Also a buyer of 40k SFRU5 9587.5/9606.25cs vs sell 9525p for -0.5 to +0.25. SFRU5 settled 9586.5. Great trade in my opinion though there will likely be a chance to enter better level. Option settles 26.5/20.75 and 5.5 so +0.25. Also a buyer 30k 0QH5 9606.25/96.3125c 1×2 for -0.25 to 0.0 (12.0s/6.0s). This looks good on paper…. until something really bad happens.
–Bank earnings: Wednesday JPM, WFC, C, GS and Thursday BAC, MS, USB, PNC.
Data: NFIB Small Biz Optimism expected to continue its rebound at 102.1. PPI 3.5% yoy vs 3.0 last. Core 3.8 from 3.4. CPI Wednesday 2.9 from 2.7 yoy. Then Retails Sales Thursday.
–DOGE in China? (RTRS)
Exclusive: China to cut pay by half for staff at top financial regulators, sources say
