Trade Recommendation: Receive 2-10 US SOFR at current levels of 0.47. Stop Loss at 0.53 & Take Profit At 0.35
Trade Rationale: The revised economic calendar in the week ahead due to the short partial government shutdown has payrolls and consumer prices set to be released in a three-day window. NFP for Jan gets released on 11th Feb and the CPI data for Jan gets released on 13th Feb. Our own view on headline NFP is at 80k and unemployment rate at 4.3%. On CPI our view is of a strong core CPI reading at .40% MoM and a supercore CPI reading at .55% MoM, highest since July’25. If both of our views are correct, then short end SOFR i.e. the 2yr US SOFR will move up from current levels as rate cuts get faded. The 10yr US SOFR might outperform the 2yr US SOFR as the shorter end gets impacted more by stronger economic data. Hence, we expect the above 2-10yr US SOFR to bear flatten from current 47 levels to 35 levels. From interest rate cut pricing point of view, currently the market is pricing in 56 bps of cut by Dec’26. We believe if the above two data points come as per our expectations, these rates cut expectations might move to 40-45 bps by the end of the week. The way US equities rallied on Friday shows that last week deleveraging exercise is over and the switch from large cap US tech to small cap & real economy stocks is now fully in place. We expect Q4CY25 GDP at 3% or more which implies a robust US economy. This also implies a bear flattening of the US SOFR curve post data release.
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