STIR: Short Setting Most Prominent In SOFR Futures Over Last Couple Of Days

Net long cover in SFRU5 through SFRM6 provided the most meaningful positioning adjustment on Friday, as the SOFR strip twist steepened.

• Trump's inauguration schedule kicks off in earnest from 1200ET/1700GMT (full details here: https://media.marketnews.com/MNIPOLRISK_Inauguration_Day_Schedule_07a11994f9.pdf ), raising headline risk around a slew of early executive orders that could define the beginning of the Presidency. WSJ writes that Trump's initial agenda will target "mass deportations, tariffs and slashing the size of the federal government".
• As such, potential tariff target currencies are being isolated by heightened vol so far, countering the view that Monday could be a quiet session due to the MLK Day holidays. The front-end of the USD/CAD vol curve has rallied aggressively: overnight vols cleared 20 points for the first time since the election itself to hit the highest since late '22, while USD/MXN vols are north of 30 points, for comfortably a YTD high.
• The downside risk for CAD is underpinned by the bullish undertones for USD/CAD - for which recent S/T weakness has proved corrective in the formation of a flag formation - a bullish continuation signal. Friday’s gains expose 1.4508 next, a Fibonacci projection level. This level looks well within reach on any early punitive tariffs targeting USMCA nations - and the run higher in vols suggests the intraday move in spot could be considerably larger. USD/CAD rallied ~150 pips on the election results in November (and a further 200 pips in the following week).

Net long cover in TY futures provided the only real positioning swing of note during Friday trade.

• Net positioning swings were modest elsewhere, as the curve was subjected to some light twist flattening