STIR: Mix Of Short Setting & Long Cover Seen In SOFR Futures On Thursday

OI data points to net long setting across most contracts daring Tuesday’s rally, with modest net short cover in TY providing the only exception to the wider theme.

• Net long setting in US & WN provided the most meaningful DV01 equivalent positioning swings 

• Fed Funds implied rates have slipped 1-1.5bp on recent headlines that China is to restrict companies from investing in the US.
• The implied rate path sits towards the middle of the week’s already reasonably wide range ahead of today’s “Liberation Day” tariff announcements due 1600ET, but are still dovish by post Trump inauguration standards.  
• Cumulative cuts from 4.33% effective: 5bp May, 21.5bp Jun, 37.5bp Jul and 78bp Dec.
• The 77.5bp of cuts for the year compares with Monday’s 72.5-81.5bp range.
• The SOFR implied terminal yield meanwhile, at 3.37% in the U6 contract, is just 0.5bp higher than yesterday’s fresh lowest close since Oct 2024 (i.e. prior to the Nov presidential election).
• Today’s data provides near-term focus with ADP employment and final durable goods but with attention firmly on the tariffs announcement at 1600ET.
• The latter are likely to overshadow Fed Gov. Kugler (permanent voter) speaking on inflation expectations and policy making at 1630ET (text + Q&A). She last spoke Mar 25 when we interestingly honed in on core goods inflation, saying recent prints have been unhelpful and affect expectations. She was watching the pick-up in inflation and inflation expectations and reiterated that the Fed can hold rates steady for “some time”.