US TSY OPTIONS: Oct'25 10Y Call Fly Sale

Core CPI sequential drivers in July are expected to come from used cars increasing modestly after a weak run plus travel-related services with lodging away from home pausing after declining and airfares increasing after broadly pausing. 

• Lodging away from home (+ve): Seen broadly unchanged on the month after a heavy -2.9% M/M in June that subtracted -0.05pps from core CPI.
• Used cars (+ve): There’s a reasonable range of estimates for used car prices in July, from -0.5% to +0.7% but they all are stronger than the -0.7 M/M seen in June. The average estimate is 0.24% M/M after four months averaging -0.6% M/M.
• Airfares* (+ve): Seen rising 1.5% M/M after -0.1% in June following a period of prolonged, large declines with an average -3.7% M/M through Feb-May. The range of views of -0.4% to 2.5% is one of the narrower in recent months.
• Apparel (neutral to small +ve): Median of 0.5%/average 0.44% having accelerated to 0.43% M/M in June from a surprisingly soft -0.4% M/M in May.
• Vehicle insurance* (neutral to small +ve): Once again only three estimates this month with a decent range of -0.1% to 0.6% M/M. The average of 0.2% M/M would be a slight acceleration from the 0.1% in June but it’s a category that can swing from month to month with a sizeable 3.5% weight in core CPI.
• Rents (neutral): Owners’ equivalent rent (OER) seen dipping to an average 0.28% (range 0.25-0.30) after 0.30% in June, but with primary rents firming to an average 0.26% (range 0.22-0.34) after 0.23%.

• Non-core: Food (small -ve): Food price inflation is seen easing to 0.25% M/M in July after 0.33% M/M. Food away from home has continued a robust run recently, with 0.40% M/M in June and a 1H25 average of 0.36% (feeding into core PCE but not CPI). Food at home meanwhile has seen two months averaging 0.27%.
• Energy (-ve): Energy prices are seen falling circa -0.6% M/M after a 0.95% increase in May, driven by a more than 2% M/M decline in seasonally adjusted gasoline prices. 

From our latest Europe Pi futures positioning update (PDF): 

• German contracts' structural positioning has been relatively steady since late July, with some subtle shifts. Schatz remains in "long", though has failed to pierce "very long" territory. Bobl has shifted into long territory alongside.
• Bund and Buxl remail short as with the last update.
• Shorts were set across 3 of 4 contracts last week, with the exception being Buxl (longs reduced).

Political consultant Bruce Mehlman notes on his Substack that Artificial Intelligence could reduce the number of competitive seats in the House of Representatives in the future, increasing partisanship in Congress.

• Mehlman: “AI promises gerrymandering on steroids — weapons of mass division in the 2025 redistricting wars — with powerful AI models able to (1) precisely-sift unprecedented amounts and unprecedentedly-personal data, (2) compare unlimited potential maps to optimize outcomes. But while AI-enabled cramming could reduce the paltry 20% of seats that are currently competitive, AI-drawn maps might also create more competitive seats by shifting voters out of safer seats (where risk-averse incumbent politicians often prefer them).”
• The report comes amid an acrimonious partisan dispute over redistricting, a process which could determine the balance of power in Congress at the 2026 midterm elections. 

Figure 1: Share of Competitive and Partisan House Seats, Over Time

Source: Bruce Mehlman, Cook Political Report