Just call…but ask POLITELY
August 22, 2024
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–Yields continued to drop with tens down 4.2 bps to 3.776%. Curve steepened, with twos down 7.6 bps to 3.92%. On the SOFR strip SFRH5 and M5 were the stars, both closing +10 (9631 and 9661). Again, just looking at M5 yield, it’s 3.39% – nearly 200 bps lower than the current midpoint of the FF target of 5.375%. Steeper SOFR curve illustrated with March contracts: H5 +10 at 9631, H6 +8.0 at 9694, H7 +5 at 9695 and H8 +3.5 at 9686.5. Every contract from H6 back is nearing 3%.
–New low settle in SFRU4/U5 one-year calendar at -166.75 (9511.25/9678). New low in U4/Z4 at -68.25. While the financial press dutifully reports that the FOMC minutes (released yest) support the idea of a rate cut, the market is projecting AGGRESSIVE easing over the next few quarters. If one has already positioned for that outcome, (and has perhaps called the BLS for an early tip on the benchmark job revisions), then one might use market strength as an opportunity to unwind large longs. Early exit sales of 20k Z4 9600/9700c 2×3 at 15.0 and 50k H5 9675/9775cs 1×1 at 12.0. Settles in Dec were 14.75 and 4.25 so 16.75 in 2×3 and 20.0, 6.5 so 13.5, OI down 22k, 38k, and 50k in both H5 options. I am NOT saying this account had the BLS revision early, however, it was reported that during the long delay awaiting the ultimate -818k revision to payrolls, sev’l shops reportedly called the BLS and were given the data over the phone (by Todd, in accounting, who had already positioned accordingly). Can’t blame Commerce Sec’y Gina Raimondo for any insider trading, she’s not even familiar with the BLS.
–The market is awaiting Powell’s testimony to determine a strong lean for 25 or 50 bp cut at the Sept 18 FOMC. FFV4 settled 9501.5, a slight bias for only 25 (9504.5 is the “pick-em” level). As friend JJ (metals, oil and everything else, on Substack) says: “…the committee will be cutting into a stock bubble, a bear market in dollars and all-time highs in gold; three powerful trends that will be contemporaneously accelerated and highly counter-productive to each other!” $/yen late was 144.53, pressing lows.
–I’ve attached a chart of SFRU4/Z4/H5/M5 condor. New low. Sept/Dec is -68 and H/M is -30. If the market knew with CERTAINTY there would be a 25 bp cut each quarter, then, simplistically, every 3m calendar would be -25. No matter what Powell does in Sept, the mkt is expecting the axe to come out post-election.
–Today’s news includes Jobless Claims expected 230k. S&P Comp PMI expected 53.5 from 54.3. Existing Home Sales. Jackson Hole has started, Powell tomorrow at 10:00 am. If you call the Fed first, and ask politely, maybe they will release the text to you early.
Let’s all be a little bit more like Rick Monday today:
