Preparation is key
February 6, 2023
–Huge NFP of 517k saw rate futures fall like an anvil. Red pack in SOFR (H4, M4, U4, Z4) down 24.75, but the average price is still above 9651, or just 3.49% when the Fed just hiked to 4.50-4.75. FFG4 settled -25.5 at 9559.0 or 4.41%. This contract captures the next eight meetings and is just a bit over 8 bps away from the current FFG3 at 9542.75. Of course, there is plenty of fluidity in between, with the lowest FF contract right in the middle, July’23 (FFN3) at 9498 or 5.02%. SFRZ3 atm 9550 straddle settled 69.25.
–The week ahead will likely require geopolitical calculus, as alluded to in the attached picture. Powell speaks tomorrow and there are a bunch of Fed speakers on Wednesday who will be crafting economic roadmaps (figuratively) through treacherous canyons. Preparations are ongoing, using Chatgbp, strike that, I meant THE ACME CENTRAL BANK MANUAL. Markets will respond by warmly embracing the $96 billion in auctions of 3s, 10s and 30s starting Tuesday. The thirty year when-issued yield was 3 5/8% on Friday. If I were Yellen I’d cram as much as possible down the throats of the coyotes to lock that rate.
–Lowest SFR contract is June’23 at 9499 or 5.01%. Highest on the strip is Dec’25 at 9712 or 2.88%, A difference of 213 bps. However, a big chunk of that is captured in the lowest one-year calendar SFRU’3/SFRU’4 at -164.
