Wild price action
April 8, 2025
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–Wild price action Monday. ESM5 had a range of 454 points, around 8%, 5286.5 to 4832. At the low SPX was off a bit over 21% from the February high. Long end of the curve also had a monster outside range day, with USM5 range nearly 5.5 points! 122-05 to 116-24 with a settle at 117-20. The 30yr bond yield at futures settle was up 20 bps to 4.59%. Initially there was a flight-to-safety bid, but that evaporated. Japan’s Prime Minister Ishiba said, “I’ve told the President that Japan has been the biggest investor in the United States for five straight years and the tariff policies could hurt Japanese companies’ investment capabilities.”…which sounds a lot like, “We’re not buying US debt any more.” Of course, the inflation headwinds from tariffs might also be considered bond negative, and US gov’t finances would likely deteriorate in recession. USM5 118 straddle settled 4’60 (46 dte), just under 5 points, a little less than the day’s range. I marked vol 14.8, a new recent high. This level is higher than August yen-carry turmoil (14), but lower than just prior to the US election (17.5). USK vol 16.7 with 18 dte.
–Curve steepened, with 2’s ending up 6.2 bps to 3.73%, 10s up 16.2 bps to 4.153%. Spreads made new highs with 2/10 up 10 bps to 42.3 and 5/30 up nearly 8 bps to 75.5. SOFR calendar spreads from SFRU6 (the peak contract) on back made new highs. SFRU6, which settled 9686.0, -7.5 on the day, had an astonishing range of 9728 (Sunday night high) to 9668 or 60 bps!!
–Don’t see this very often: FFN5 was UP 4.0 bps to 9604.5, while FFN6 was DOWN 5.0 bps to 9689.5. FFN5, front July, has two scheduled FOMC meetings in front of it, May 7 and June 18. Current EFFR is 4.33 and FFN5 yield is 3.955, a difference of 37.5, or 1.5 cuts, assuming quarter point moves. The spread from FFN5 to N6 is -85 bps.
–Consumer credit for February was released late yesterday, and indicates a weak consumer.
In February, consumer credit decreased at a seasonally adjusted annual rate of 0.2 percent. Revolving credit increased at an annual rate of 0.1 percent, while nonrevolving credit decreased at an annual rate of 0.3 percent.
–This morning NFIB Small Business Optimism fell to 97.4 (expected 99) from a high of 105.1 in December. In the 2 year period from mid-2022 to mid-2024 it averaged 91. Three-year auction today followed by 10’s tomorrow. CPI is on Thursday.
