SOFR: Long Setting Dominated In Futures On Thursday

• Fed Funds implied rates are essentially unchanged on the day, still close to the most hawkish levels seen since February.
• Cumulative cuts from 4.33% effective: 0.5bp Jun, 6.5bp Jul, 18bp Sep, 31.5bp Oct and 48bp Dec.
• The SOFR implied terminal yield is 3bp higher on the day at 3.29% after yesterday’s 3.26% was the lowest close since May 9.  
• NY Fed’s Williams (permanent voter) in a fireside chat yesterday: can’t take well-anchored inflation expectations for granted and wants the whole curve of inflation expectations “well behaved”. We’re still in a low neutral rate globally but there is a lot of uncertainty around neutral rate estimates.
• Today sees the FOMC minutes at 1400ET from the May 6-7 FOMC meeting. They are likely to be perceived as stale after the US-China trade de-escalation on May 12 before last week’s threat of 50% tariffs on the EU and subsequent one-month delay in when they might start.

(As per Bloomberg):

• EU13b 10Y Fixed (Oct. 31, 2035) at +7
• Guidance SPGB+9 area
• Benchmark: SPGB 3.15% 04/30/35
• Books above EU120b (including JLM interest): Leads
• Coupon: Annual, act/act, short first
• Issuer: Spain Government Bond (SPGB)
• Ratings: Baa1/A/A-
• Format: Reg S CAT1, dematerialized, registered, senior unsecured, 144a eligible, CAC
• Settlement: June 4, 2025
• Denoms: 1k x 1k
• ISIN: ES0000012P33
• Bookrunners: Barclays, BBVA (B&D), JPM, MS, Santander, SocGen

OI data indicates a general bias towards net long setting in SOFR futures between Friday & Tuesday settlements, although there was a pocket of net short cover across the reds.