Longer maturities accepting the idea of lower yields
January 31, 2025
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–Q4 GDP advance estimate was just 2.3%. Today, PCE prices are released:
m/m expected 0.3 from 0.1
Core 0.2 from 0.1
Yoy 2.6 from 2.4
Core 2.8 from 2.8
–Odds for an ease in March declined slightly. FFJ5 settled 9571.5, down 1.5, around 20%, and SFRH5 settled 9575, down 1. However, deferred contracts rallied, with SFRH6 +3.0. The one-yr H5/H6 calendar settled at a new recent low of -38, and M5/M6 at a new recent low -21 (9592/9613).
–Trump rattled the market late in the day with tariff announcements on Mexico and Canada, but ESH5 settled 6099.25. +31.75. Gold hit a new all-time high, with GCJ5 2845.20. SPX has nearly erased the DeepSeek sell-off that started the week. DJIA never even noticed. AAPL bounced around after yesterday’s results, but appears to have resolved higher, now over 245.
–2/10 treasury spread eased a couple bps to 31.3, with 2s -2.7 to 4.197 and 10s -4.7 to 4.51. Straddle prices eased across the board. TY open interest up another 55k to 4.97m. Though futures price action was fairly muted, TYH5 settled +9 at 109-07+.
–Lacy Hunt on Thoughtful Money cites a study by Barry Habib noting that shelter inflation is significantly overstated. I do not know details, though a friend said Habib has been tracking the basis between Corelogic rent and CPI rents for some time. Newly signed leases are indicating meaningful deceleration. Implication is, of course, that CPI may already be at the Fed’s target. FNMA (Fannie Mae) had spent last year between 1 and 2. In December it was around 2.75, now near 6 on expectations of privatization.
