FOMC:

I will keep this section short as nothing was really announced of substance. Warsh to me felt a lot more like a politician than a Central Banker. He couldn’t answer a question straight and the market reacted practically on the long end of the yield curve. (Figure 1)

Real Rates and Inflation Swaps really didn’t move all that much after FOMC, in fact the 2Y inflation swap is down a few bps YTD. (Figure 3) Reals however, are up YTD with the 2Y Real Rate up about 0.857% (Figure 2) Back to the FOMC reaction long bonds sold off, UBU6 dropped -2.32% this week and ZBU6 fell -1.76% this week. (Figure 4)

Subscribe now

Finally relating to FOMC the SR3 futures curve saw the front end sell off with U6 dropping -10.5 bps and Z6 dropping -6.5 bps (in the rate the imply) the belly was pretty uneffected. (Figure 5) The back end Z7-Z9 caught a bid +3bp at Z7 building to +12bp at Z9. Across the whole curve the average move was just 2 bps but don’t miss the steepener twist. The odds of a hike in September now sit at 68.8% at the time of writing.

Leave a comment

The Fixing:

SOFR set at 3.65% Thursday — a single basis point firmer on the week, and 3bp below where it fixed a month ago. The print itself is quiet; the context under it isn’t. Daily volumes held near $3.0tn, so the firmness isn’t a thin-tape artifact.

The real move is in the reverse repo facility. ON RRP take-up has collapsed to roughly $1bn, down from about $27bn a month ago and a $461bn peak just over a year back; it bottomed at $30mn on the 20th. For practical purposes, the RRP cushion is gone — and that’s the whole story, because RRP has been the shock absorber keeping SOFR pinned to the floor. With it drained, the fixing has started grinding up against the administered floor and is sitting at the top of its recent range (the high end of the last two weeks 3.57–3.65 band). Also now that the RRP cushion is gone extra demand on overnight cash now has to be met by bank reserves instead — and reserves are stickier and pricier, because a commercial bank won't lend into repo until the rate clears IORB, its own risk-free alternative.

Traders should keep an eye on the following, SOFR printing consistently above IORB,then print higher than the 99%ile (currently 3.75%). If you are interested in Repo market you must be subscribed to the plumbing ninja . I would start with the post below and explore from there.

Conks

Demystifying the Repo Market

Every day in global finance, trillions of dollars are transacted in an obscure but crucial funding market: the market for repurchase agreements, or “repo” for short. The world has slowly shifted onto a…

Read more

3 years ago · 167 likes · 25 comments · Conks

The Strip:

Share Celeritas Capital

This week was pretty eventful across the SOFR strip. (Figure 7) With whites getting a bid as the aggressive hiking priced in got eased back a bit. U6 had the best weekly performance up 9.50 Δ. (Figure 7) Reds were relatively muted in their price action, with the biggest weekly mover being M8 with a performance of -3.50 Δ. (Figure 7) Slightly more hawkishness/hikes price shifted down the curve in Greens.

Net: the market keeps pushing near-term firmness up and the terminal down. The front prices the Fed staying put a while longer; the back keeps pricing the easing cycle that follows. Yields make the same point — the front sits at 3.89–4.22%, humps through the M7–U7 belly, then grinds down to ~4.1% across 2028 before the deep back (U30–M31) kicks back up to 4.23–4.34%. That late upturn is the tell: this isn't a clean cut-to-neutral path, it's a hump-then-dip-then-lift — a market that can't decide whether the long-run rate is a four-handle or lower.

Spreads:

The Z6-H7 spread steepened in July up about 6 bp. (Figure 8) To quickly explain what this spread is telling us about market pricing, since the spread is positive the market is pricing a higher rate for March 2027 to June 2027 in comparison to December 2026 to March 2027. Also since the spread is rising this tells us on H7 implied rates are rising relative to Z6 implied rates or Z26 rates are falling faster.

The Z6-Z7 spread flipped back positive this week, giving us just 6 bp of possible easing from now through 2027. (Figure 9) I think this pretty mispriced but we will look at that in the next section.

What is Priced In?:

Spot rates are currently at 3.63% with the curve climbing from there ~3.81% by mid-September, 4.00% by December, 4.13% by next March. Cumulatively that's +37bp priced by year-end and +53bp by April '27 — a firming bias worth a bit more than two quarter-point moves, spread thin across seven decision windows. The steps are small and even (5–11bp apiece), which is the market's way of saying it expects the destination without committing to the route. Nothing on the calendar prices more than ~46% of a full move. The week's repricing was a rotation, and the pivot is further out than it looks. Against last Thursday, the front came down hard and the back went up: U26 implied rates −10.5bp, Z26 −8.5, H7 −7.5, M7 −6.5, U7 −5.5, fading to −0.5 by M8 — then flipping positive from U8 (+1) and building to +5.5bp at Z9. The hinge sits in mid 2028. So the market spent the week taking firmness out of the next eighteen months and putting it into 2029. Near path softer, destination higher. That's the same soft-nose/firm-tail rotation the strip and the spreads showed, confirmed independently.

The curve does not tell you everything, for that we will look at options on SR3 futures. At the September contract the median lands at 3.88% — dead on the forward — with a 90% range of just 3.54–4.21%. Roughly 51% odds of finishing at least a quarter-point above spot, only 10% of finishing below it. Tight and directional: near-term, the market is fairly sure it knows where this sits. (Figure 10)

Subscribe now

Push out to December and it opens up fast. Median 4.08%, but the 90% range spans 3.35–4.86% — a full 1.5 percentage points. About 69% odds of at least +25bp, 45% of at least +50, 24% of +75 or more, and still a 14% chance rates end up below where they are today. That’s not a market that has decided anything; that’s a market with a lean and enormous variance around it. (Figure 11)

By late 2027 the lean itself starts eroding. The December '27 contract prices a median of 4.14% — lower than the March/June '27 peak of ~4.19–4.22% — with a 90% range of 2.62–5.62%, three full points wide. And the probability of ending below today's spot has climbed to 31%, with a 22% chance of a rate below 3.38%. Read the sequence across the strip: odds of "no firming at all" go 10% → 14% → 18% → 23% → 26% → 31%. The further out you look, the more real the possibility that the entire firming story never happens. (Figure 11)

I am in the camp that the market is putting too much certainty on a hike especially by the end of 2026. More SOFR trades coming soon to Celeritas Capital. Now since we are talking about what options are implying I think we have too look at the tails. My favorite is the 25D RR and its volatility.

Skew says the hedging demand runs one way, with no exceptions. At 25D the RR reads −2.2bp at U6, −2.1 at Z6, −6.0 at H7, −9.7 at M7, −11.2 at U7 and −14.4 at Z7. Every contract on the strip is negative, and it deepens monotonically with maturity. Puts — protection against higher rates carry the premium everywhere, and they carry more of it the further out you go. Nobody is paying up for a near-term stumble. This isn’t a barbell; it’s a single-sided book against the terminal landing above where the curve prices it. (Figure 12)

Leave a comment

But the shape isn’t the news — the position within it is. A downward-sloping RR curve is this series’ normal state: over the past year the average reading runs +10bp at the front and slides to −4bp at Z7, with the median doing the same. Front-above-back is the resting shape, so today’s ordering tells you nothing by itself. What does tell you something is where each contract sits in its own range. U6 and Z6 are unremarkable — both inside their interquartile range, both within a standard deviation of their means. From H7 back, every contract is below its lower quartile, at roughly one to one-and-two-thirds standard deviations under its mean, and the reading deepens steadily out the strip: −1.09 at H7, −1.28 at M7, −1.30 at U7, −1.67 at Z7. The crowding into higher-rate protection is a reds-and-greens phenomenon. The front is behaving normally; the back is where the positioning has gone one way. (Figure 12)

Flows and Positioning:

Volume and Open Interest: Whites vs Reds vs Greens

Unsurprisingly most of this week’s OI change and volume was in the whites. (Figure 13) This makes sense with the Fed meeting this week and the uncertainty about when the first rate hike will happen. In-fact on Friday nearly 88% of all SR3 option volume was in whites. (Quick note on that data point, I only recorded volume and OI change for whites, reds and the green 2Y mid curve options)

Below is Figure 14 which shows a strike ladder for SR3U6 and SR3Z6.

One trade that caught my attention was placed Wednesday, FOMC day. The trade in question was the SR3U6 96.1825/96.25 call spread. On Wednesday alone 14 trades took place totaling 6767 contracts. Why do I think this trade is interesting? Well if I am reading the position correctly it seems to be a bet that the market will start to price the September Fed meeting as a certain hike, the current probability is 68%. Also of note is the options expire 5 days before the actual Fed meeting so this trade is more so playing upcoming economic releases in my view.

Now I have to be careful how I word this next part but based on OI change at the 96.1875 SR3U6 call I am leaning towards that call spread being opened on Wednesday not closed. (Figure 16) I personally have no way to confirm this 100% as I don’t have access to options data with telling me if a trade was bought or sold.

Next Week’s Calendar:

Next week should help the market price the curve with more certainty with the key data dropping Thursday and Friday. Non-farm payrolls and initial claims will certainly be ones to watch.

Conclusion:

Well that is all I have for this week. Thank you so much for taking the time to check out the first SOFR Sunday post. If there is interest I would love to expand this to STIR Sunday and include the rest of the G4 curves. As always feedback is extremely appreciated, if I made a mistake please point it out and I’ll gladly fix it. I am far from a subject matter expert on STIR trading, I am just learning and sharing my journey to hopefully inspire other traders to take a look into STIRs. If you are interested in STIRs and macro more generally I cannot recommend enough that you subscribe to . He has a bunch of great articles regarding STIR trading, how to think about macro trading and plus an entire website full of great data. Finally, I also have to recommend QuikStrike to anyone trading any future product. Follow this link to sign up for a trial! They also have a great product for index, ETF and equity option traders. It is called QuikOptions if you click that link you will be able to sign up for a 7 day FREE trial!

In today’s article I am going to layout my logic behind another STIR trade this time focusing on reds in Europe and the UK. If you’re not familiarly with EURIBOR or SONIA when I say that I am referring to 3 month EURIBOR futures (EURIBOR) which trade as IZ2026 on Tradingview and ERZ26 most other places. Or 3 month SONIA futures which trade as SO3Z2026 on Tradingview and SFIZ26 most other places. As for the term ‘red’ it is the slang for the STIR contracts that follow the first four expirations (I believe) Figure 1 & Figure 2 and from QuikStrike and help explain the jargon.

Subscribe now

EU Economy and Crude Scenarios:

Taking a look at inflation first the Euro Area inflation rate YoY recently printed at hot 2.6%. (Figure 3) Which is an outlier according to standard deviation, this was primarily driven by energy prices skyrocketing due to the war in Iran. This is driven home by the Figure 4 as well as in my inflation model for the Euro Zone adapted from work done by .(Figure 5)

Subscribe now

Now onto how to read this model, HICP standards for harmonised index of consumer prices pretty similar to the CPI print here in America. The other four categories are self explanatory, the model is simply a momentum model. Red equals inflation over the target rate of 2% YoY, green is the opposite. T-1 is one data print ago so in this case it is the reading from February 2026 and so on for the columns, 1P Δ / 3P Δ / 6P Δ are acceleration/deceleration measures in percentage points. To me the inflation picture in the Euro Zone is most definitely heating up due to war in Iran and the knock on energy price increase. With that being said headline inflation is still sticky but not out of control. In 6 months time the model projects HICP at 2.80 YoY. A few important notes this model is momentum based so please take that into consideration. If you are like me and curios what the inflation picture would like with crude at different levels well you are in luck because I mapped out three cases for crude related inflation, base case, bull case and bear case. I will expand further on what each of these paths stem from and leads to.

Share

Inflation Base Case:

My base case is informed by a few things the current price of CLZ26 as well as option pricing. Along with the classic TACO Trump function and the upcoming midterms I don’t think it is crazy to have oil at $82 a barrel in six months time as my base case. In Figure 6 you can see my base case for EU inflation. If we take the MoM impact of the price of crude on the EU HICP according to my model we get -0.54 YoY on the contribution of Crude to EU inflation. That puts my projects in my base case HICP will print around 2.26 YoY in 6 months time. If my project is close that hardly seems like an environment the ECB would hike rates in.

Inflation Bull Case:

Quick defining of bull case here, it is what I believe the best case for lower inflation in the EU looks like. A near peace in the middle east type deal. This scenario has oil around $68.50 for the next six months. Figure 7 shows that this model probably needs some finetuning as it shows this would drop inflation in the EU by -5.27 YoY to HICP. I think this is a bit extreme so I am going to half it to -2.635 YoY to HICP. Which would put my six month projection in the bull case for HICP at 0.50 YoY. Which is extremely unlikely as the services sector had inflation pick up in the most recent print but the two models are separate. I find this case the least likely.

Leave a comment

Inflation Bear Case:

Now onto the inflation bear case, this scenario sees oil spiking to $105 a barrel and staying there for a significant amount of time. Figure 8 shows the model sees inflation spiking sharply in the EU. After some adjusting on my end in this case my projection for HICP is 4.445 YoY. Which does make hikes look a lot more certain in my view. This is also a scenario that would invalidate the trade for EURIBORs.

The 2 Year Real Rate in the Eurozone have been dropping since the start of this year. This can be seen in Figure 9, which is courtesy of I’m very thankful he lets his subscribers share some of the amazing stuff he has got on his dashboard. If you’re not already subscribed to him I can’t recommend his work enough. But the 2 year real rate dropping even with the backdrop in Iran. This reads like market saying “rates are high enough to roughly match inflation, but not high enough to create much real tightness” Where do I think the ECB will take rates? I think we could very likely see one insurance hike sometime in 2026. With cuts likely coming in 2027.

Global Macro Method

Global Macro Method is a collection of research and trade hypothesis that I personally use to trade global macro in futures.

UK Economy:

The UK is in a similar place to the EU economically speaking. Both were on track to a soft landing with cuts priced in as early as 2026 in earlier in the year. Energy was also the main thing causing UK inflation to spike to 3.3 YoY during the most recent print. (Figure 11) Although I will note Services CPI also printed slightly higher as well in March. (Figure 11) My inflation momentum model still shows that compared to 6 months ago inflation is slightly down YoY. (Figure 11) Similar to Europe I read this inflation as hotter in the near term due to crude and geopolitical factors but the disinflation will continue in the longer term even if it is sticky.

The 2-year real rate complicates the picture a bit more complex. UK inflation is cooling on a 6-month basis, but the front-end real rate is no longer tight enough to confidently force inflation back to 2%. That makes the next 12 months look like slow, sticky disinflation rather than a smooth return to target. The best case for the UK economy is the bull case outlined above. As for rates I see a possible insurance hike in 2026 with rates likely coming down in 2027 a cut or two.

Trade Expression:

Now onto trade expression I personally like the simplest way to play the views expressed above. Which for the EU is long ERM7 and for the UK it is long SFIU7. The implied rate for SFIU7 roses 28.5 bps in the last 7 days. I believe we will see this correct in the coming months. The SONIA curve is pricing in the BoE holding rates into the 4%s through 2027. I believe we will see lower rates in 2027, with the current geopolitical risks a forgotten memory in early 2027 I think the BoE will take back their insurance hike and the market will start pricing in cuts.

What Validates the Trade: Inflation rolling over after an initial spike. Growth deterioration. The curve pricing cuts in 2027, Hormuz resolution that gets ships flowing again is great for the trade.

What Invalidates the Trade: Further tension in the Middle East isn’t good for this trade. Inflation broadening beyond energy related spikes. FX weakness in the GBP.

Just in the last 7 days the implied rate for ERM7 rose 18.5 bps which is a drop in the price of the future. (Figure 14) The EURIBOR curve is pricing in too many rate hikes currently. If they hike it will be a insurance hike in 2026 to lead the way for cuts in 2027 is my view at least.

What Validates the Trade: Pretty much the same as the SONIA trade. What Invalidates the Trade: Same as SONIA trade.

Below in Figure 15 & 16 is how I view the Risk:Reward on the trades currently. You could also configure this a butterfly shorting SFIZ26 x2 for every contract you long on the wings.

I have a new post in the works that is very interesting, I’m surprised I haven’t seen anyone talking about it. Coming soon!

Leave a comment

Hello, everyone welcome back to Celeritas Capital. I just wanted to share my thoughts on what has been happening lately with the STIR curves across different countries mainly the US, UK and EU. We will recap recent macro prints, what traders are expecting and what they are pricing in by end of this year.

Some important notes before we continue, I realize not all of my readers are STIR traders so in the near future I will be creating a primer series with the goal of explaining STIR futures at their simplest level. In the meantime I highly recommend you read this article by and both of who have miles more knowledge on STIRs than I do. You can check that out below and if that peeked your interests I recommend reading ’s primer of SOFR options also linked below.

AP Research

Global Primer Series: STIR Trading

Contributions from Brian Gierke and CME Group…

Read more

a year ago · 85 likes · 8 comments · AP Research and DCP cooks

AP Research

Global Primer Series: SOFR Options

SOFR options are arguably the purest expression of monetary policy risk in global markets. While SOFR futures have become the benchmark for short-term US dollar interest rates, options on these futures allow traders to express views on the distribution…

Read more

a year ago · 69 likes · 2 comments · AP Research

As a final note I would highly recommend all Celeritas Capital readers go subscribe to and read the article linked below. As it will be used as a frame of reference for this article. Long time Celeritas Capital supporters (and paid subscribers) please shoot me a message or email with your Substack username and I will happily provide with a free month to . However, the main thing readers need to know is you should be able to summarize a STIR curve move in a short sentence with a couple key elements. You will see some examples in the next couple sections.

Global Macro Method

STIR (Rates) Application Process (Lite)

Over the past few weeks I have received a number of questions about rates… This post looks to answer some of these. Generally, when people talk about rates, they usually talk about a number 10s are up, 2s are down, two cuts are priced. That’s fine for a headline conversation and talking with your mates, but it’s not how I stay oriented when the market is actually moving…

Read more

6 months ago · 17 likes · 1 comment · Global Macro Method

3-Month SOFR Curve:

Subscribe now

Where: The weekly comparison for the US SOFR curve was lead mostly by the belly (H27, M27, U27 & Z27) with H27 dropping -5bps implying a lower rate into 2027. Front end didn’t see much movement with Z26 only dropping -4.5 bps. Back end from M28 onward is flat to marginally higher (+0.5 to +1bp). (Figure 1 & 2)

How: We had a bull steepener with a hard pivot point around H28. Everything inside that tenor rallied; everything outside went nowhere or ticked cheaper. The curve twisted — it didn't shift. The front-belly steepened (more cuts priced in the 2026-27 window) while the long end gently bear-steepened (terminal neutralish or slightly higher). That divergence matters. (Figure 1)

Why: The terminal rate lowered. (H27) The market added to the cutting cycle depth without changing timing — April and June FOMC holds are still fully priced. The back end ticking +1bp at M29 is the tell: the market isn't saying rates go lower forever, it's saying the trough gets deeper before normalizing. This is an energy-relief repricing that hasn't reached the front end because traders are still not sure this entire situation in Iran won’t add inflation in the near term, forcing the FED to hold rates this year.

One sentence: Belly-led bull steepener pricing a deeper cutting cycle without pulling forward the start "more eventually, not sooner" while the back end pushes gently.

Leave a comment

3-Month EURIBOR Curve:

Where: Broad-based but front-belly heavy. U26 and Z26 both -12bp, the largest moves on any of the three strips. H27 at -11.5bp, tapering to -5bp at Z29. (Figure 3 & 4)

How: This is not a twist, the entire curve came lower, which is a different animal from SOFR. The shape compressed rather than rotated. The hump that had been building around U26-Z26 (where the market was pricing the first ECB hike) flattened as that hike pricing got ripped out. (Figure 3 & 4)

Why: Hike pricing and certainty got downgraded in the EU. The magnitude (-12bp on the belly in one week) tells you how much energy premium was embedded. Hint, it was a lot! According to the GMM dashboard still shows cumulative hikes through Dec-26 (182.8%), so the direction hasn't flipped — the market still prices tighter policy, just substantially less of it. This is risk reduction, not capitulation. (Figure 4)

One sentence: Near-parallel dovish shift dominated by front-belly hike removal — the largest absolute repricing of the three curves — but the strip still slopes toward tightening, making this an unwind not a reversal.

Share

3-Month SONIA Curve:

Where: Belly, cleanly centered on H27 at -12.5bp — the largest single-contract move on the strip. The repricing fans out symmetrically: Z26 at -11.5bp and M27 at -12bp flanking the peak, tapering to -1.5bp at the front (H26) and -1bp at the back (Z29). Average shift across the strip is -6.7bp. (Figure 5 & 6)

How: Textbook convex bull flattener. The curve had a pronounced hump at Z26/H27 (both at 4.165% on Apr 10 — the highest implied rates on the entire strip), which is where the market was pricing the peak of BoE tightening. That hump has been shaved by 11.5-12.5bp while the wings barely participated. The curve compressed toward a flatter shape rather than shifting in parallel. Critically, the front end (H26 at -1.5bp) stayed pinned — the May MPC hold is not in question — and the long end (Z29 at -1bp) didn't move because long-run neutral beliefs haven't changed. (Figure 5 & 6)

Why: This is a peak repricing. The market was pricing the BoE's terminal tightening rate at ~4.165% in the Z26-H27 window. That terminal has now been pulled down to 4.04-4.05%, which is roughly 25bp of hike pricing removed from the peak. The BoE was facing a forced tightening narrative: sticky CPI at 3.0% core, 4.3% services, and March minutes flagging second-round energy effects into wages. The Hormuz reopening mechanically reduced the energy passthrough that justified that peak. But note: the curve still prices rates above 4% from U26 all the way through Z29 current Bank Rate is 3.75%, so the strip still sees 25-50bp of hikes as the base case. This isn't a dovish flip. It's a de-escalation of the hawkish extreme. (Figure 5 & 6)

Subscribe now

One sentence: Peak-rate repricing centered on H27 at -12.5bp the market dialed back how high the BoE goes, not whether it goes.

That is all I have for now. In the next piece I would like to dive into how you can profit if you believe these pricings are to hawkish. Thank you for reading and make sure you subscribe to and be sure to check out his site.

What is the front end pricing?

Share

As I write this on Easter Sunday 5:40 PM EST, SR3Z26 is pricing zero BPS of cuts or hikes for the rest of this year. (Also a Happy Easter all who celebrate!) SR327 is now pricing just under one cut by the end of 2027. SR3Z28 is pricing in just 11 BPS of cuts. (Figure 1) I believe the market is heavily mispricing the effect of the war of US rates.

My evidence is as follows True Inflation is down well below 2%. This gives the FED some wiggle room with their second mandate of maxing employment.

Subscribe now

Figure 3 shows the 1yr inflation swap at 3.25% vs the 1y1y forward at 2.48% is a ~77bp inversion. (Figure 3) The market is pricing a near-term inflation impulse that it expects to fade. This is likely from the higher near term crude prices. Importantly if you look at the December WTI Crude Future at the time of writing it trades up 14% since the start of the war but is still sitting a rather modest $72 a barrel. Assuming the energy market is correct in it’s pricing that this entire war wraps up in the next few weeks our model see’s US CPI dropping by 0.75% in the next 12 months. (Figure 4)

I would be fading any rate hikes getting priced into SR3 futures, especially SR326 which means I am a buyer at the 96.100 level. In my view 2 cuts by the end of 2027 is extremely likely. But that is all I have for now, sorry for the short post but I just recently started a job so most of my time has been focused on that. The good news is that this job allows me to finally save up the money to start my own book! More information on that coming in the next couple of months. Thank you for reading and supporting Celeritas Capital!

Leave a comment

Leave a comment

Capital Flows

[FREE] Educational Primers On Every Aspect Of Macro & Markets

Welcome to Capital Flows…

Read more

3 years ago · 633 likes · 19 comments · Capital Flows

Share

The Indicators:

https://www.tradingview.com/script/8IM99RQa-SOFR-PNL-Driver-v2/

https://www.tradingview.com/script/CvUN9s5M-SR3-SOFR-Curve-Compare-2-Dates-Diff-Histogram-Scaled-Diff/

https://www.tradingview.com/script/jwnp0LJK-STIR-Levels-Implied-Cuts-Hikes/

Subscribe now

That is all I have for now. Big thank you to for inspiring these models and much more. Please leave your feedback in the comments below!

Leave a comment

Yamco

Positioning and Week Ahead [03/16]

Another Turbulent week and the summary last week was pretty spot on….. Risk management remains front and center as headlines and whipsaw will continue this next week…

Read more

6 months ago · 6 likes · Yamco

The Week Ahead:

This week is sure to be an interesting one with a FED meeting. Which is likely to be a nothing burger overall but if you watch rates I think important sentiment from FED members might be gained via disneters, etc. Then on Thursday we have Initial Jobless Claims. I expect that we stay under the the scary red line of 305k which is still quite a ways out more proof the US labor market is not all doom and gloom. (Figure 1) In fact I think we print below one standard deviation upwards about 221 k jobless claims is my calculation. I forgot to mention that Wednesday morning 3/18, we get PPI in the morning before the FED meeting.

Subscribe now

All things considered I see the PPI coming in hot MoM and it would not surprise me if we saw it print near one standard deviation upward (aka 0.89% MoM). That level hasn’t been seen since mid 2022 so I don’t expect the print to by near the standard deviation just something I thought I would note. (Figure 2) Of course the FED meeting what everyone is waiting for this week. So let start with straddle pricing for the week.

Leave a comment

ES Straddles:

ES Straddle Pricing for next week and beyond:

If you are not similar with how straddle pricing works don’t worry just find the DTE (Days Until Expiration) column. Look at the ATM price, let us use 3.02 DTE the ATM price is 114.46 so you take that number and add it the current price of ES for the upper bound and vice versa for the lower bound. (Figure 4) Note that the way I explained how to calculate the expected move from straddle pricing is the ‘back of the napkin’ way of doing it.

Share

Sentiment and Exposure:

Let’s take a look dealer positioning for SPX options, ES Risk Reversals, ETF flow and the ES Vol surface. Let’s dive into it.

VS3D Positioning:

First I have to say if you are not in the weeds of dealer positioning for SPX options and by that I mean you understand the basics. But if that isn’t you perhaps just skim this section as misreading the context could do damage your trading. Explaining SPX option dealer positioning is one above my knowledge gap and two above my pay grade. If this interests you at ALL I recommend following on Twitter(X) and check out both the Youtube and website. I get no compensation for sharing either VolSignals or QuikStrike/QuikOptions, both companies partcaily the founders of both have already taught me a BOAT LOAD of things so sharing the great products they provide is the least I can do.

Leave a comment

Now looking at the position by strike tool by VS3D you can see every 10 strikes along with MMs exposure at the strike. The blue bars are dealers being NET long options at that strike (don’t worry about calls or puts right now) for example the long blue bar at the bottom of Figure 7 is the 6000 strike in which dealers a long more 20,000 units there. The yellow bar is when dealers are NET short options at a strike. (Figure 7) If you have questions leave a comment and I will try to help and if I can’t I will try to point you in the right direction.

NOTE THAT THE NEXT FOUR SECTIONS HAVE BEEN WRITTEN BY CHATGPT SO TAKE WITH A LARGE GRAIN OF SALT. As LLMs are known to have difficulties with esoteric financial market stuff. That said I agree with this analysis based on my fairly limited time trading SPX options as a retail trader. (Which basically means big grain of salt like I said before)

Key Levels & Take Aways:

With all of this week’s expiries loaded, the market looks far more anchored around the 6600–6690 zone, with the biggest nearby pivots still clustering around 6600 / 6630 / 6660 / 6690. That should make the week less about one clean opening move and more about whether price can stay inside that core inventory pocket or break outside of it.

So for the week as a whole, I would treat 6630/6660 as the center of gravity, 6679/6585 as the first real directional checkpoints, and 6727/6537 as the outer edges of the current all-week risk envelope.

Above 6690, the profile starts to thin out enough that upside can travel faster toward 6720/6727, and if that upper edge is accepted, the next meaningful overhead shelf looks more like 6780/6810.

Below 6585, the market starts slipping away from the tightest nearby inventory. That puts 6540/6537 in play quickly, and if that lower edge fails, the move can open into 6510 and then 6480, with a deeper weekly flush bringing 6420/6390 into focus.

So the week’s broad question is not just “up or down,” but whether SPX can stay pinned inside the 6600–6690 pocket or escape into a larger trend leg.

Gamma:

The all-expiry profile suggests the 6600–6690 area should behave as the main control zone. When spot is trading inside that pocket, dealer hedging is more likely to reinforce back-and-forth trade and keep the market interacting with nearby strikes. That creates a tape that can still move, but tends to stay tied to the central cluster rather than run freely.

The profile becomes more directional once price starts leaving that zone.

Above 6679/6690, the market begins to move away from the heaviest nearby inventory. That can allow upside to travel more efficiently into 6727, and if the upper weekly edge is accepted, the move can extend faster toward the next overhead shelves.

Below 6585, the same logic applies in reverse. A break of the lower half-straddle starts to pull the market away from the central strike cluster. If 6540/6537 gives way, downside can become much more fluid, with 6510 and 6480 the next natural targets.

For the week, gamma says the middle should be sticky, while the edges should move faster.

Charm:

Charm is also relevant because the board contains all of the week’s expiries.

As time passes, decay should keep pulling attention back toward the strikes with the densest nearby positioning. In this setup, that makes 6630, 6660, and 6690 especially important above spot, while 6600 and 6540 matter most below.

If SPX spends time in the mid-6600s, charm should help support a market that repeatedly re-centers around those strikes. That favors intraday reversals, failed breaks, and movement back into the core range after excursions.

Charm becomes less helpful once price establishes itself outside the half-straddle boundaries. Above 6679 or below 6585, the market is no longer sitting on top of the strongest decay magnets, so directional movement becomes easier to sustain.

That makes charm most effective when the market is already near the center, and less effective once price starts pressing the outer edges of the weekly range.

WEEKLY BIAS:

Base case: trade rotates inside 6600–6690 until one side decisively clears.

Bullish path: hold the mid-6600s, reclaim 6679, extend into 6690, then probe 6727.
Bearish path: lose 6600, break 6585, test 6540/6537, then open 6510 >> 6480.

The key read for the week is whether SPX remains tied to the mid-6600 control zone or escapes it. Inside that pocket, expect two-way trade. Outside it, expect faster expansion toward the weekly edges. (End of AI writing)

Share Celeritas Capital

ES Risk Reversals:

ESH6 and ESM6 25 Delta Risk Reversals (25D RR) continue pricing a greater probability of a crash down than a violent move up. The constant maturity ES Z-Scores for 25D RR vol skew shows that the longer the tenor the higher the vol on the put side of the RR. I believe this fairly normal as indexes are often used to hedge downside risk for a book long equities. Also history shows paying for insurance on a large equity book via puts on the SPX or ES has been a solid hedge. However, the constant maturity for 360 days for ES shows the put skew spiking driving the chart lower. (Figure 8) While this is certainly a sharp drawdown in comparison to the last year it is nothing compared to history. (Figure 9) It is my view that put skew will start to cool meaning OTM call vol rises faster than OTM put vol. At least on longer tenor options. Shorter term for example, the constant maturity for 30 days for ES options had a reading of -8.47 far below the lower quartile of -5.99 and mean of -5.18. (Figure 10) The LQ and mean I quoted are for the entire data set I have which goes back daily to early 2007. (Figure 10)

To make a very long story short watch shorter dated put vol (30 days and less) and 25D call vol. In my view the market is mispricing upside risk ASSUMING this war Iran doesn’t expand to a full invasion. If there is a full invasion than downside protection is still relatively cheap.

Leave a comment

ETF Flow:

This one month ETF flow chart from is via from he is awesome suite of tools you can find here! The tools on the site are honestly extremely helpful for framing equites and macro and all for free, check it out!

ES Vol Surface:

Below is my first attempt at coding up a vol surface. The inputs are 32 expires 2097 options definitely a small sample size but it is a proof of concept for something bigger coming sooner. If you see any glaring issues with it please leave a comment so I can get it fixed and hopefully deployed to subscribers. I mostly wanted to show this for feedback so that is always welcome in the comments!

Breadth on SPX:

I am not much of a believer in breadth but strong breadth is certainly a characteric of a bull market. As you can see in Figure 13 below breadth certainly isn’t strong at the moment.

Assets I’m Watching This Week:

Finally lets end with what assets I will be watching this week. Of course the classics are on the menu like ES, NKD, whole SOFR curve as well as bond futures. Two equity names I will be watching & both of which have been in the news recently but my eye was caught by something else. Using QuikOptions (following the link should let sign up for a free account that offers a ton of stuff. The monthly or yearly subscription is even more powerful and how I can view and analyze these spreads). The trade that caught my eye was this put calendar spread. This was a Floor Trade, if you want my opinion it is likely a vol trade. (Figure 14) It could be long the longer dated tenor and short near term vol but of course I don’t know but I will be watching using QuikOptions.

As for this Put Calendar Spread with this trade collecting over 300,000 in credit. (Figure 15) This seems like a risky trade to put on since it is a short Calendar, again I think this is someone probably a lot smarter than me trading vol but who knows? I will be watching for a meme like activity as well which should spike the price on muted or no news.

That is all I have for this weeks post, I hope to come back on touch the logic for my 3-Month EURIBOR Futures call spread trade. New posts will keep coming, in a few days I will start sharing my models with subscribers first will be my STIR indicators. All code is open source of course but more on that later. Check out my last post on the long greens trade (SR3Z28) Thank you for reading everyone the Celeritas will keep improving.

Marco Picture and Outlook:

Scenario Analysis:

Expressions of Trade:

What Invalidates Trade?

Institutional Trade:

The Current Macro Picture:

The US economy has shown resilience on almost all fronts besides labor. Which I will admit it is rather important but for this trade we assume a random walk of the unemployment rate with lower bound of 3.8476% and a upper bound of 7.1359%.(Figure 1)1 More on why I choose that in the analysis section. This strength in recent days has shown its escapilly against the Eurozone. (Figure 2 & 3)

The first thing you’ll notice in these charts is one key difference that the STIR curve in the Eurozone is now pricing in hikes as soon as June of 2026! (+11 bps implied on the IM2026, 3M EURIBOR June 2026 Futures) Last week (week of 3/2) ISM PMI for manufacturing and services both came in above expectations. Jobless claims printed just under expectations and alternative measures like the ADP Employment Change Back up this relative strength of the US labor market. With AI all over the headlines in regards to what it means to the labor market and how nobody truly knows for sure, I won’t explore this too much. My view is simple AI will boost productivity and help job growth however this will likely happen as business fire white collar white workers they deem replaceable. Middle management is at particularly threatened, this will push the unemployment rate north of 6% in the next 24 months. This will be offset by GDP growth in my view as mentioned above. Inflation is more tricky but I see it slowly rising with overnight rates. CPI and PCE prints this week will be worth watching if you put this trade on or you’re long risk assets. The FED is in the pretty meeting blackout period but I think next meetings disnets will be an important signal to watch for the trade. (More on that later.)

Share

Scenario Analysis:

This section is filled is models from claude that I have double checked to the best of my ability and the underlying logic is mine.

Soft Landing:

In this inflation cools at 2% or under, the job market bends but doesn’t break down totally, GDP growth slows but is still positive YoY.

Inflation-

Let’s start with inflation, this model is based on paper linked in the footnotes2

Subscribe now

Now I would like to focus on the RW model for this scenario but MW1 is valid as well the bounds on the 1Y interval are noise with MW1 which is why I selected the RW for the 1Y and 3Y interval, the lower bound for 1Y is 2.36% for CPI and the 3Y lower bound is 1.259% for CPI. These are both in line with the soft landing scenario. (Figure 6)

The RW model for the 1Y interval sees an upper bound of 6.684% and a lower bound of 3.576% for the 10-Year US Bond Yield. (Figure 8) Again in line with what we want (generally a lower 10-Year US Bond Yield)

The Hard Landing:

In this scenario we see AI productivity gain as the labor market falls apart like we haven’t seen since the great financial crisis (excluding COVID). Unemployment peaking at 7.6% in 1Y time. In Figure 9 the RW 1Y interval we are looking at the upper bound. At the same time inflation is running hot so the FED is forced to hold or raise rates. This scenario is exacerbated by the Iran scenarios with oil over $103 a barrel which is the models reference price for Crude. (Figure 9)

This is where the put spread I am proposing would shine. SR3Z8 96.5/96.125 PS F:96.695 D:1.00 is the part of the trade as a hedge. S2Z6 96.625/96.125 PS is the hedge I would recommend to someone with access to trading mid-year SOFR curve options. More on this in the Institutional Trade section of the article. Also more detail can be found in the trade section of the post.

Figure 10 shows that SR3Z28 outperforms its peer (SR3Z27) during a Crude price shock. However, a very important note about all of these models first they are coded with Claude and if there is interest, I will share the models and code freely with all subscribers. None of these models take into account the FED reserve members especially the new FED Chair who will take the lead on interest rates. I think this a key area this whole process could be improved upon.

Expressions of Trade:

As alluded to above I think the best expression of this trade is long SR3Z28 futures with a put spread as a hedge. More specifically the SR3Z8 96.25/95.875 PS expiring on 12/15/2028. (Figure 10) From QuikStrike we can see the max return and max loss, along with the pricing in a scenario with SR3Z28 futures at the 200-day EMA and vol from last Friday.

I suggest anyone interested in this trade or building any future/option spread use QuikStrike. If you have QuikStrike and want I can share this trade with you I believe, so you can play with the simulation. Also I created with Claude a PNL driver indicator for SR3 futures in TradingView. I believe that it is accurate with limitations of pine script but again any feedback is welcome! I will also share the script and code if people want it. Again just leave a comment or send me and email or message.

Leave a comment

As for the futures position I like an entry at or below 96.650, with the take profit target 123 ticks or 97.245 (implied rate cuts of about 113 bps) with a stop loss of 77 ticks or 96.255 (implied hike of 12.5 bps about). As I write this SR3Z28 is pricing in exactly 30 bps of cuts. (Figure 11) I think this is far too low. With the 25D RR on SR3Z28 pricing in approximately a 25.9% chance rates go to or below 2.25%. My Take Profit of 2.75%ish implied rate seems reason for the risk profile here. I view this as a very high trade conviction but I feel it is important to be upfront that I am not currently running this trade with any real capital. Simply put I don’t have the capital to do the trade justice in my opinion.

What Invalidates the Trade?

-I will keep this short and sweet, in my view a prolonged ground invasion with US troops in substantial numbers of Iran hurts this trade a lot and I would close it if the stop loss hasn’t been triggered.

- “THE 2028 GLOBAL INTELLIGENCE CRISIS” or anything similar also rules out rate cuts in my view. Note that Citrini piece is more of a thought experiment than a model.

-A global recession is called in 2027 or obvious data one is looming in 2027.

Institutional Trade:

The reason I call this section the institutional trade is simply I think only institutional traders have access to trade to my knowledge the mid-year SOFR option curve and EURIBOR options which is the extra trade I am throwing in here. Inspired by conversation with (check his morning chats for that) I think the ERZ6 97.8125/98.75 CS is a great deal here. I will likely do another full article on this trade but I want to be timely. Check out both Figure 13 & 14 for more detailed view of each spread.

That is all I have for now everyone. Leave a comment if you want any of the models referenced in this article. Next post is likely a write up on the the ERZ6 97.8125/98.75 CS then exploring QuikOptions. Thank you for reading!

Leave a comment

Open Interest (OI) and Volume for ESH26:

Below is an open interest heatmap with expirations for the next 27 days. (Figure 1)The Figure captures what the market saw at close on Monday the 9th. This heatmap highlights large OI by expiry, as you can see call OI for wingy calls (think 25D-15D) was not that large on Monday. (Figure 1) In Fact one of the largest call OI was actually ITM, with some notable large OI at the at the 7000c. But this was Monday’s view lets take a look at how we ended this week in regards to OI on ES.

Share

If you take a look at Figure 2 you will notice a few things, first the ATM strike rolled down as ES finished the week down -1.16%. (Figure 2) Second you will notice put OI expanded during last week especially between the strikes of 6800-6750 with most of the OI being focused on the contract that expires 2/17/26, which is the first full trading day for futures after Presidents Day. OI is nice to be aware of but let’s take a look at volume now.

We will be comparing the volume from Monday the 9th to Fridays volume. Below Figure 3 is a heatmap matrix that is comparing the change in volume at the 25 strikes closet to ATM. I circled the increased volume at the 6850 strike along with circling two decent increased volume on the 6800 & 6750 puts. In my mind the increase in those puts is likely a market participant hedging for more possible downside. 25D put skew on ESH26 has continued to bid up. We will talk more about skew later in the piece. I also circled the 6900 call which gained quite some volume again could be a hedge or some market participants could be leaning bullish after Friday’s close. The next volume change that caught my eye was the large the large put volume on the 2/20 expiration at the strikes 6775, 6800 and 6850. (Figure 3) To me this looks like hedgeding for the large amount of economic data releasing Friday 2/20. Market participants also traded more calls last Friday compared to last Monday. I interpret the data like this some market participants expect to see some a relief from last week. (Figure 3) The decrease in volume on the 2/20 6900 put adds to this idea. But this could always be calling selling.

Subscribe now

Leave a comment

Volatility and Skew on ESH26:

Figure 4 is nice compact way to look at volatility, one thing you will notice is that the ATM volatility is evaluated Friday when compared to Tuesday volatility. This is almost certainly due to the high impact economic data releasing on Friday. Friday the 20th we have USA GDP Growth QoQ and even more importantly we the PCE print. Interestingly the 25D QuikSkew is telling us that last Friday for the EW3G6 contract (2/20) the 25D put decreased in vol from 21.2 to 18.1. While the 25D call for EW3G6 had its vol increase slightly from 18.2 to 18.6. In my opinion this implies call vol on that specific contract is catching a bid which is interesting to me considering the economic data coming Friday. Also a quick explanation of what QuikSkew is so the letters represent the put and call - as this expect. The capital letter indicates that the volatility is higher than the ATM vol by 18.9% (not vol percent but actual percent of ATM vol) and the bottom set of numbers represent what it opened at.

Now for some skew! If you‘ll notice the 25D put skew is dropping for every contract but the 2/17 expiration which in the Figure 5 is the darker orange line. Call skew is also picking up from its recent lows. If 25D call skew picks up some more steam it could signal a relief bounce back on the index.

Leave a comment

At the start of last week ESH26 25D RR measured in at -5.69 as of Friday’s it had dropped to -7.31. Despite the market already dropping ~100 points, traders are paying significantly more for downside protection now than they were at the highs. This could suggests "crash anxiety." The ESH26 RR closed below -7 three times in the last 3 months. The most recent was February 5th with ES closing -1.24% with a trading range of 157.50. The second time was January 20th with ES closing -2.11%. And the final one I’ll mention was on November 20th again ES closed down -1.56%. If you look at Figure 7 you’ll quickly notice after the RR hit that level it violently repriced to the up side. Which also happens to the price of ES just look at a chart the day after any of the aforementioned dates. Also very import note -7 isn’t some magic floor for the RR it can and has gone much lower. With the short trading week this is something to watch for sure. The real question is -7.31 as low as we go on the RR or do we go even lower?

QuikDNA is a great tool that lets you quickly see different vol and skew metrics from a historical viewpoint using Z-Scores. (Figure 8)

That is all I have for now. I would like to make this something more regular and in-depth but I wanted to see how my readers would react to it first. If you liked it please leave a comment with feedback and any other futures you would like me to explore. Also I am self taught in-regards to everything related to trading or finance so I’m certain to make mistakes, if you could point these out I would greatly appreciate it.

All charts or figures in this post are from either QuikStrike or QuikVol.I can’t recommend both products enough if your a futures trader they are a must. But they didn’t forget about equity and ETF bros either. They have a new addition named QuikOptions, if you trade options on indexes, ETFs or single name equites they have a toolkit that will help you immensely in trading.

Subscribe now

As you can see in Figure 2 this recent military build up in the Middle East by the USA has expanded vol across all energy products. To briefly explain Figure 2, this is QuikDNA a tool from QuikVol. QuikDNA is extremely useful for understanding the vol market with just a glance. The X-Axis is a Z-Score and the Y-Axis is the ticker symbols. (LO=CL, BZO=BZ, LN=NG, OH=HO, OB=RB)

Share

Leave a comment

I’m sure everyone and their grandparents have been talking about metals. So I won’t beat a dead horse and instead I will leave you with the current ATM vol for metals. So if you’re trading metals be sure to be ready because vol is still here and evaluated. (Figure 4)

Next I want to examine the recent uptick in equity vol. We will focus on ES, as you can see in Figure 5 vol has risen across the curve but this is most noticeable on OTM puts (25D in this case). This isn’t surprising if you look at the recent price action on ES.

Finally lets take a look at BTC. If you have not been living under a rock I’m sure you’ve noticed that BTC has had a rough couple of days. This tells us that OTM tail protection is getting bid up in vol terms and likely price terms as well. (Figure 6) The current reading is at 14.28, the 25D Put Skew has only breached the 15 level four times. (Figure 6) The first time this happened was in April of 2020 (this reading is not on this graph to make it easier to read). The next 30 trading days saw BTC rise 30% but do remember this was during 2020 markets are very different. The second breach of 15 happened in May 2022 and the following 29 trading days BTC returned 0.21%. The third time was June 2022 with BTC losing -4.45% the following 29 trading days. The last breach of the 15 level was in November 2022 with BTC returning 12.33% the next 30 days of trading.

Subscribe now

Thank you for reading this new article by Celeritas Capital! If our reads are interested in more posts like this we would love to share more. If you trade futures options I HIGHLY recommend trying out QuikStrike if you follow the link by clicking on ‘QuikStrike’ you will be directed to the website. Where you can sign up for a trail! If you are more of a equity, ETF or Index trader don’t worry. The same guys who made QuikStrike have just released a product aimed at retail but with the power that is usually reserved for institutions. QuikOptions is a great tool and priced extremely fairly, why not follow the link and get a 7-day free trial! I plan on creating a few posts on how I use QuikOptions and how you can use it to level up your trading. Also important this is NOT sponsored by Quik, I just think the products are great and the team is extremely kind. So please check them out, I will leave their twitter accounts below.

QuikOptions

QuikStrike

Hello, everyone and welcome back to the Celeritas Capital fund review. Where I review our portfolios performance over the past month, review trades, take a look our current holdings and share some trades. As always thank you so much for reading! If you find Celeritas Capital to be of value please consider sharing the work with a friend or colleague. It is greatly appreciated, now lets dive into this months review.

Share Celeritas Capital

Main Fund Performance:

July was another successful month for the Main Fund. With the Fund ending the month up 36.75% year-to-date. (YTD) The Main Fund is outperforming the S&P 500 by 26.55% YTD. (Figure 1)

Option Fund Performance:

The Option Fund has not been performing as well as the Main Fund has been performing. (Figure 2) The Option Fund also had a large swing in P&L due to the account getting assigned some in the money calls. (Figure 2) With that being said the Option Fund is currently sitting at 5% return YTD. With the Option Fund trailing behind the S&P 500 by 5.20% YTD.

Reviewing Trades:

The first trade I want to take a look at is a /MES trade from the Main Fund. (Figure 3) I entered the trade on June 27th and exited on July 3rd for a profit of $503.75 per contract. (Figure 3) I then re-entered the position on July 16th and exited on July 23rd for a profit of $500 per contract. (Figure 3) This trade was mainly based on momentum.

Subscribe now

Now lets take a look at a trade from the Option Fund. This is part of a option trade. On August 1st I sold 2 contracts of the 80 put expiring September 5th. (Figure 4) I sold each contract for 4.65 and they are currently trading for 0.725 which means the position is up over 80% so far. (Figure 4)

Now I want to quickly look at a trade that did not go our way. This trade is also from the Option Fund. On July 1st I bought a SR3Z2026 96.75 call. (Figure 5) This turned out to be a local top for SR3Z2026 decreasing the calls price. (Figure 5) I should have added to my position during this drawdown because my thesis ended up coming true. What was my thesis? Simple really, I expected the market to price in more cuts. This started to happen on August 1st with the disappointing jobs report and was hinted at by Chairman Powell on August 22nd during Jackson Hole. (Figure 5) I took advantage of the price spike in SR3Z2026 on the 1st to exit my calls for a small loss. (Figure 5)

Leave a comment

Trade Ideas:

The first trade I want to take a look at is a SOFR trade. The goal of this trade is to profit from the market pricing in less cuts due to inflation fears. Currently SR3Z2026 (3-month December 2026 SOFR future contract) is pricing in approximately 130 bps of cuts. In my view that is a little rich, I think 100 bps of cuts being priced in is more appropriate. So how can we setup this trade? I purpose selling an OTM call and buying an OTM put. The expiration for these options is 12/10/26 and the strikes are 97.500 for the calls and 96.750 for the puts. (Figure 6)

The trade currently costs 14.5383 to put on. (Figure 7) In Figure 8 is the projected price change if SR3Z2026 decreases to 96.710. At 96.710, SR3Z2026 would be pricing in approximately 100 bps of cuts which is in line with our view. (Figure 8) If this scenario plays out the trade will profit 10.2955. (Note this part of the post was written on 8/24/25 so the prices will not be up to date.)

Current Portfolios Holdings:

Main Fund:

Option Fund:

Executive Summary

Fixed Income Dashboard

US Treasuries

G7 Fixed Income Update

Yield Curves Dynamics

Corporate Bonds

Conclusion

Executive Summary:

Fixed income markets saw mostly subdued moves across the curve, with only minor moves as investors and traders wait for next week. The 10-year Treasury yield eased slightly to 4.38%, while short-term yields ticked up, resulting in a modest curve flattening. In contrast, global yield trends diverged – European yields rose (e.g. German Bunds) as markets sensed the ECB is done cutting rates, whereas UK gilt yields fell on soft domestic data. Notably, Japan’s 10-year yield spiked to multi-year highs (~1.60%) amid a political shake-up and speculation of policy change. Credit markets were firm: corporate bond spreads ground tighter to cyclical lows, supported by steady inflows and lighter issuance. Investment-grade (IG) and high-yield (HY) bonds posted small positive returns, outperforming Treasuries, as investors continued to reach for yield. Central bank outlooks reflected a turning point – the Fed and Bank of Canada held rates steady (with markets still pricing in future cuts), the ECB paused its easing cycle after substantial prior cuts, the BoE leaned toward rate reductions as UK inflation remained elevated, and the BoJ faced pressure from rising yields and inflation but is expected to stay ultra-accommodative in the near term. Overall, fixed income markets remain in a late-cycle balancing act between easing monetary policy, lingering inflation concerns, and episodic political risks.

Subscribe now

Fixed Income Dashboard:

Hello everyone and welcome back to Fixed Income Friday. I hope this was a successful week for all of you. Let me know if you think the changes to the formatting works. I’ve added an executive summary for all the busy traders and I added a section to review the fixed income markets of G7 countries. In case you missed it, I published part 1 and part 2 of my corporate bond primer this week. (Linked below) Long time subscribers will recall that I actually published the original part 1 last year. I wasn’t totally happy with it so I decided to redo part 1. Please check out the primer and let me know what you think! Also be on the lookout for part 3 in the coming weeks. Part 3 should be quite extensive and will dive into how research and select corporate bonds for a portfolio.

Share

US Treasuries:

US Treasuries had a lowkey week this week with slight changes in yield across the curve. The 2-year yield edged up 124 basis points to ~3.92%, while the 10-year yield fell 68 bps to ~4.38%, and the 30-year dipped 122 bps to ~4.93%. This resulted in the yield curve flattening. I attribute this to the lack of data this week along with FED meeting next week. Initial jobless claims fell on Thursday for the sixth week this week. This sent yields higher on Thursday but yields retraced to there levels before initial jobless claims. This print confirms that the US labor market is still healthy. However, the 5-year breakeven inflation rate spiked to 2.5% after initial jobless claims which is the highest its been since March of this year. Interestingly the 5-year breakeven inflation rate has risen 88 bps since Liberation Day, it seems investors are pricing in higher inflation likely due to uncertainness around tariffs. Yields did not really react to this change in inflation expectations, with markets pricing over 100 bps of rate cuts by the end of 2026. (Figure 3) To me this shows that market participants believe that any tariff driven price increases will be transitory or outweighed by a growth slowdown.

On the policy front, the Federal Reserve is in a holding pattern as it heads into next week’s FOMC meeting. (On July 30th) The FED is expected to hold rates steady at 4.5% (upper bound) during the July meeting. It will still be interesting to hear what Powell has to say, I expect that he will repeat what he’s said for the last several meetings. “We are in no rush” “Lets wait and see”- Powell probably. Notably President Trump has (sort of) walked back talk of firing Powell. Trump of course wants Powell to cut rates to juice the economy, I think Powell is certainly making the right decision here. Next week we also get JOLTS, Q2 GDP estimate and June PCE. (PCE is the FEDs preferred way to measure inflation) Until then US Treasuries are likely to stay range bound.

Treasury Auctions & QRA:

Treasury auction activity was in focus mid-week. The U.S. Treasury’s 20-year bond auction (reopening a 5.00% coupon, May 2045 maturity) on Wednesday drew strong demand: the high yield stopped at 4.935%, nearly 85% allotted at the high, with a solid 2.79× bid-to-cover ratio. Indirect bidders (a proxy for foreign and institutional buyers) took a hefty ~67% of the competitive allotment, leaving primary dealers with a relatively small share a sign of healthy end-investor appetite. Next week we have a 2-year and a 5-year auction on Monday.

QRA stands for Quarterly Refunding Announcement, this is when the Treasury releases its borrowing plans for the upcoming quarter. (For example what % of new issues will be bills, etc) Here is what DB has to say about the upcoming QRA.

Market participants hoping for aggressive Treasury action to lower yields at the upcoming refunding are likely to be disappointed. We think major shifts in issuance strategy are unlikely given Treasury's strong institutional commitment to being "regular and predictable". Meanwhile, the combination of a technical upward revision to near-term borrowing and elevated expectations raises the risk of sell-off in duration and spreads, similar to what followed the last refunding announcement. We expect Treasury to announce an updated Q3 borrowing estimate of $960bn – up substantially from May driven by post-debt ceiling TGA rebuild needs. The optics are likely negative and reminiscent of two summers ago, when yields spiked on increased borrowing concerns. We also expect an initial Q4 borrowing estimate of around $680bn. We now expect coupon issuance increases to begin in mid-2026, reflecting Secretary Bessent’s recent comments on not raising longer-term debt sales at current yield levels. A temporary drop in the bill share earlier this year, which brings the average closer to TBAC’s “20% on average over time” recommendation, may also give Treasury some flexibility to run a higher bill share in the near term. We expect bill supply to rise in the second half, with heavy issuance through August. Market capacity for increased issuance appears strong, though the expected depletion of the ON RRP could require bills to cheapen to sustain demand. We think issuance could test upper bounds of market capacity around late August. We expect any changes to the buyback program to be incremental and designed to evolve with the Treasury market, not as a backdoor attempt to shorten WAM. There is a decent chance Treasury could announce some changes next week, including modestly raising the quarterly buyback cap from $30bn to $34bn (potentially up to $40bn), along with adjustments in sector allocation and operation frequency, particularly in the oversubscribed 10–20yr sector.

I pretty much agree with DB, I want to add that I wouldn’t be surprised if we saw a higher issuance of bills during this QRA. Also I used ChatGPT to see how the 10-year US Treasury changed from dates of past QRA to seven trading days after the QRA. This data may not be correct so be warned.

Leave a comment

G7 Fixed Income Update:

Canada:

Yield Update: Canadian bond yields moved lower across the curve this week. The 10-year Government of Canada yield fell to ~3.52%. Yields are up this month across the curve.

Central Bank Outlook: The Bank of Canada (BoC) is expected to hold its overnight rate at 2.75% at the upcoming July 30 meeting. The BoC has kept rates unchanged since a 25 bp cut in March 2025, pausing to evaluate the impact of earlier easing. Recent data have been mixed: inflation saw a “recent rise”, edging above the BoC’s 2% target, and unemployment ticked down, suggesting the economy still has some heat. The market is still pricing in one more cut before the end of the year. We will see how that unfolds.

United Kingdom:

Yield Update: UK gilts rallied modestly, with yields edging down across maturities. The 10-year UK gilt yield ended around 4.63%. Yields on 2-year and 5-year gilts also fell a few basis points. This contrasts with rising yields in the Eurozone, marking a divergence driven by data and policy expectations.

Central Bank Outlook: The Bank of England (BoE) has become increasingly likely to cut rates in the near future. Thus far, the BoE has been more cautious than other central banks – it has trimmed rates by only 100 bps (Bank Rate now 4.25%) from last year’s highs, whereas the ECB cut 200 bps over the same period. UK inflation is still running rather hot making the BoE more careful with rate cuts. However, the market is pricing ~50 bps of BoE rate cuts by year-end.

Germany:

Yield Update: German Bund yields rose slightly, continuing an upward drift seen in recent weeks. The 10-year Bund yield closed around 2.70%. The rest of the curve moved like 10-year Bund did, German yields closed at the highest since mid March.

Central Bank Outlook: The European Central Bank (ECB) kept its key rates unchanged at its policy meeting on July 24, holding the deposit rate at 2.00%. This pause snapped a string of seven consecutive rate cuts since last year, totaling 200 bps of easing. President Christine Lagarde indicated that the ECB will wait to assess the impact of its substantial easing, given persistent uncertainties (including global trade tensions). Importantly, officials hinted that the ECB may be done with rate cuts for now if the economy evolves as expected. Euro-zone inflation has been trending down for the most part.

France:

Yield Update: French government bond yields mirrored Bunds, creeping higher over the week. The 10-year OAT (Obligation Assimilable du Trésor) yield reached approximately 3.37%, up a few basis points. The spread between OATs and bunds is currently at 67 bps.

Italy:

Yield Update: Italian government bond yields were stable this week, a positive outcome given rising core yields. The 10-year BTP (Buono del Tesoro Poliennale) yield held around 3.55%, essentially unchanged from last week. This means Italy’s spread over Germany narrowed slightly to ~85 bps, among the tightest levels in over a year. The BTP-Bund spread has gradually compressed in 2025, indicating investors’ improved confidence in Italian creditworthiness (helped by ECB support and reduced political noise).

Japan:

Yield Update: Japanese Government Bond (JGB) yields surged this week, drawing global attention. The 10-year JGB yield jumped to about 1.60%. This is the highest level since 2008. This is a remarkable move for Japan’s typically subdued bond market. Yields at the long end hit fresh multi-year highs as well. (30-year JGBs surpassed 3%)

Central Bank Outlook: The Bank of Japan (BoJ) meets next week (July 31) amid speculation it could adjust policy, though the base case is for no change. Notably, a trade deal between the U.S. and Japan was announced mid-week – removing some trade uncertainty – which opens the door for the BoJ to begin normalizing policy without fear of yen-crushing tariffs. Adding to the pressure, Japan’s core inflation is running ~3.3% YoY, above the BoJ’s 2% goal, and wages are rising modestly.

Yield Curves Dynamics:

2s10s:

The U.S. 2s10s yield curve flattened slightly this week. (Figure 6) Short-term rates nudged higher while long-term rates eased, compressing the 2-year vs 10-year spread to about +48 bps. (Figure 6) Below is Figure 6 which shows what yield curve regime we are currently in and the past regime. This is based on an indicator that has shown off, I created it using ChatGPT so I’m not 100% if this is correct if you could correct any mistakes in the comments I would greatly appreciate it!

Subscribe now

Corporate Bonds:

Investment-grade corporates enjoyed a constructive week, with supportive technicals and resilient demand. (IG Bond ETF) returned 0.12% this week. Solid earnings reports and stable macro data kept credit concerns at bay, allowing IG spreads to grind tighter into historically low ranges. The option-adjusted spread on the ICE BofA IG index is now down to about 0.79% – essentially unchanged week-over-week and near the tightest levels of the past year. New issues were rather light this week but demand remains strong.

The high-yield market extended its rebound, aided by improved risk sentiment and steady fund inflows. (HY Bond ETF) returned roughly +0.22% this week. Lower-rated credits have been bolstered by the view that a “soft landing” (or at worst a mild recession) is the most likely economic scenario – thus far, default rates remain low and corporate earnings in many high-yield issuers are holding up. The ICE BofA US High Yield Index’s OAS tightened to ~2.82% by Thursday. down from ~2.93% a week ago, marking one of the tightest spreads since early 2022. In fact, the HY spread briefly dipped below 280 bps mid-week, an exceptionally low level that indicates investors are very confident about credit risk in junk bonds. For perspective, the HY OAS was over 5% during the 2022 credit scare and averaged ~4.5% in the decade before the pandemic. The current sub-3% spread is more akin to late-cycle 2006-2007 levels, suggesting frothy valuations. Inflow to HY was strong this week and new issues did well mostly.

Below if the NY FEDs Corporate Bond Distress Index, I thought I would include it this week. (Figure 8)

Conclusion:

I hope you enjoyed this weeks Fixed Income Friday. Sorry for posting this late on Friday night. Please leave any thoughts in the comments below!

DISCLAIMER: We are not Financial Advisors, and all information presented is for educational purposes ONLY. Financial markets can be highly volatile, so good risk management is a must.

Macroeconomic Environment in Relation to Corporate Bonds

The Credit Cycle

Credit Default Swaps

The Primary and Secondary Market

Role of Ratings

Macroeconomic Environment in Relation to Corporate Bonds:

Corporate bond performance moves in tandem with the broader economic cycle. Recognizing these macroeconomic dynamics is essential for crafting an effective credit portfolio allocation.

Subscribe now

Impact of Economic Activity (GDP)

Credit spreads exhibit a consistent negative correlation with GDP growth, typically tightening during periods of economic expansion and widening during recessions. Credit spreads often widen before a recession officially begins, reflecting corporate bond investors’ anticipation of future economic developments. This forward‑looking quality makes credit spreads a leading indicator, signaling broader shifts in the economy ahead of traditional data releases. As a result, effective macro analysis requires a multi‑indicator framework—investors should track GDP figures alongside other leading indicators and watch for early warning signs like slowing corporate profitability or rising leverage. Corporate profitability is highly cyclical, directly influencing companies' ability to generate sufficient cash flows to service their debt obligations. Cyclical industries, such as the automotive sector, are highly dependent on private consumption and investment. Their credit ratings and spreads are closely tied to GDP growth, experiencing significant fluctuations with economic shifts. This strong dependency means that a macro view on GDP growth should directly inform sector allocation decisions, favoring cyclical sectors during anticipated expansions and underweighting them during contractions.

Interest Rates and Central Bank Policy:

Central bank policy and prevailing interest‐rate levels play a pivotal role in determining corporate credit spreads. In practice, spreads tend to move inversely to rates: when interest rates climb—often reflecting an improving economic backdrop—corporate balance sheets generally strengthen, and credit spreads tighten as default risk diminishes. A flattening of the short‑end yield curve—such as the 2‑year vs. 6‑month Treasury spread—often goes hand in hand with tighter corporate credit spreads, reflecting stronger economic fundamentals. By contrast, a pronounced steepening of the 2‑year/10‑year curve—typically seen as a recession ends and expansion begins—has historically foreshadowed positive excess returns in corporate bonds. In that phase, monetary policy keeps short‑term rates low while improving growth expectations push long‑term yields higher. Central bank policy, particularly interest rate easing, stimulates economic growth, reduces companies' debt service costs, and can bolster consumer confidence, generally leading to tighter credit spreads. A notable observation is that Baa credit spreads often reach their peak when the Federal Reserve has completed approximately two-thirds of its interest rate cuts. This suggests that the market anticipates the full effect of monetary easing, indicating a potential window of opportunity for traders to position themselves before the entire rate-cutting cycle concludes. Deflationary environments tend to lead to wider credit spreads across the market, as falling revenues make it harder for highly leveraged borrowers to meet obligations. Conversely, rising inflation can benefit credit by making it easier for companies to pay down nominal debt. The yield curve's slope is a powerful predictive tool for future economic growth and corporate profits , making its analysis a critical component of strategic asset allocation for credit portfolios.

Share

Corporate Sector Health: Financial Leverage, Interest Coverage, Operating Leverage:

Moving beyond simple leverage ratios to a more complete view of corporate vulnerability is essential for gauging sector health. Measures like debt‑to‑equity can be distorted by swings in equity valuations, so it’s better to focus on a company’s real ability to generate cash and service its debts.

One powerful proxy for aggregate free cash flow is the ratio of credit market instruments to internal funds, which explains much of the variability in corporate bond spreads. Even more insightful is the “financing gap”—the portion of capital expenditures not covered by internal funds. A sharp rise in this gap in the late 1990s warned of overextended spending, while its reversal after the 2001 recession—when after‑tax cash flow exceeded capex—sent a clear positive signal to credit markets. This dynamic, cash‑flow–based approach offers a deeper assessment of credit health than static leverage metrics. Interest coverage ratios, which compare profits to net interest payments, are crucial for identifying short-term liquidity problems. While the overall level of indebtedness has risen due to falling interest rates, interest payments have generally remained manageable. However, a low interest coverage ratio, even in a low-yield environment, can signal weak profitability and a lack of top-line growth.

"Operating leverage" refers to the sensitivity of a company's profits to changes in sales volume, driven by the proportion of fixed costs in its operating structure. Companies with high operating leverage can experience booming profits during economic recoveries as existing capacity produces more without significant additional costs. However, this also implies higher risk during downturns due to the burden of fixed costs. Low industrial capacity utilization, for instance, can signal future above-average profit growth as demand picks up. Conversely, increasing industrial production generally leads to tightening credit spreads, as it indicates rising revenues and solid cash flows, strengthening companies' debt servicing capabilities. This suggests that different sectors will respond differently to economic cycles based on their operating leverage profiles, directly informing sector allocation decisions. (EDIT)

Key Macroeconomic Indicators and their Impact on Corporate Bonds:

Share

Real World Examples:

GDP Growth:

In the period after the 2001 recession, the US corporate sector saw the "financing gap" (the difference between capital expenditures and internal funds) close and fall below its long-run average. This deleveraging, combined with tax cuts that provided capital to the corporate sector, significantly contributed to corporate bond spread tightening between autumn 2002 and 2004. (Figure 1) This illustrates how a return to strong GDP growth can lead to tighter corporate bond spreads as perceived credit risk decreases. (Figure 1)

Interest Rates: Between 1994 and 1995, the Federal Reserve implemented seven interest rate hikes, leading to a sell-off in the Treasury market and a massive flattening of the yield curve. (Figure 2) In such an environment, credit usually suffers, and corporate bond spreads can widen as the cost of borrowing increases for companies. (Figure 2)

Central Bank Policy:

Following the bursting of the equity bubble and the 2000/2001 recession, central banks eased monetary policy. (Figure 4) With the Fed Funds dropping approximately 72% and spreads tightening 135 bps. (Figure 4) If you look at Figure 4 you’ll notice that the High Yield OAS Spread peaked approximately 2/3rd’s of the way through the rate cuts. This demonstrates how aggressive monetary easing, aimed at stimulating economic activity, can coincide with the peak of corporate bond spreads as the market anticipates future improvement in corporate credit conditions. Figure 3 shows how when the Fed cut rates in 2020 bonds rallied along with credit spreads tightening. (Figure 3)

Leave a comment

Financial Leverage:

Credit spreads have a negative correlation with the performance of the NASDAQ US Free Cash Flow Achievers Index. (Figure 5) We are using the NASDAQ US Free Cash Flow Achievers Index as a stand in for free cash flow measurements. Figure 5 shows that when free cash flow decreases credit spreads widen.

Interest Coverage:

Lets use an example for the book Investing in Corporate Bonds and Credit Risk by Frank Hagenstein, Alexander Mertz and Jan Seifert.

Having focused on indicators for the overall level of leverage so far, we will now switch to metrics that relate the ability to generate cash flows and profits to the interest burden. This helps to better capture liquidity problems in the short term, but goes at the expense of understanding the longer term vulnerability of the corporate sector due to leverage. Although Figure 3.11 seems to show a long-term upward trend in the ratio of net interest payments to cash flows, one can argue that the level reached in 2003 roughly represents the average over the last 35 years. The rise in the overall level of indebtedness in this period has coincided with significantly falling interest rates, keeping the interest burden for the companies on a manageable level. Like the ratio of net interest payments to cash flows, interest coverage, defined as the ratio of profits to net interest payments, has remained in a range since 1970. Again, as one might expect, when net interest payments are better covered by the level of profits, creditworthiness improves, and credit spreads tighten. But interest coverage in 2003 was still near its cyclical low, indicating weak profitability in the nonfinancial corporate sector and a lack of top-line growth (see Figure 3.12). Considering the fall in yields, the low level of interest coverage is problematic. Partially it results from the fact that not only the companies’ liabilities are interest-rate sensitive, but also the value of a part of the assets depends on the level of interest rates.-Hagenstein et al.

Operating Leverage:

One way to gauge operating leverage quickly is by looking at industrial production. New industrial production is very capital intensive which makes the industrial production index a good measure of operating leverage. In Figure 8 you’ll notice that the BofA US High Yield OAS Spread is negatively correlated with industrial production. (Figure 8) When the industrial production index drops credit spreads tend to widen. (Figure 8)

Subscribe now

The Credit Cycle:

The corporate bond market operates within a discernible "credit cycle" that is closely intertwined with the broader business cycle and corporate financial behavior.

Phases of the Credit Cycle and Corporate Leverage:

Credit spreads are highly correlated with the business cycle, and this relationship is underpinned by a "leverage cycle" that reflects aggregate macroeconomic activity. Most companies undergo regular phases of leveraging (taking on more debt) and deleveraging (reducing debt), which are directly linked to their profit and capital expenditure (Capex) cycles. Trends in mergers and acquisitions (M&A) can also significantly impact credit markets by influencing aggregate corporate leverage.

The stylized leverage cycle typically progresses through distinct phases, each with characteristic credit and equity market performance:

• "Debt growing faster than profits": In this phase, often seen during expansions when companies prioritize growth or shareholder value, corporate leverage increases. While equity markets may perform well, credit spreads tend to widen as bondholders perceive rising risk. (Figure 9)

• “The bubble bursts": This marks a downturn, where both credit and equity markets decline as excessive leverage becomes unsustainable. (Figure 9)

• "Debt reduction": Following a downturn, companies focus on deleveraging through balance sheet repair, asset disposals, and rights issues. During this period, credit markets tend to improve (spreads tighten), even as equity markets may still be struggling. (Figure 9)

• "Profits growing faster than debt": As the economy recovers and deleveraging efforts bear fruit, both credit and equity markets tend to perform well. (Figure 9)

The leverage cycle provides a powerful framework for forecasting credit‑market inflection points—often flagging shifts before they show up in GDP or equity returns. Because equity prices alone can mask underlying business and financial stress (for example, when debt grows faster than earnings amid a stock rally), fixed‑income investors should overlay leverage metrics on their macro analysis to anticipate spread widening or tightening and adjust portfolio beta accordingly.

Moreover, “safe” sectors—like utilities or noncyclical services—can become riskier if they ramp up leverage, while heavily indebted firms may actually de-risk by paying down debt (as seen in European telecoms in 2002–2003). In practice, sector allocation should reflect not just inherent cyclicality but also management’s financing strategy and potential shifts in leverage.

Default Rates and Rating Migrations:

The analysis of default rates and rating migrations is central to understanding credit risk dynamics within the credit cycle. Default rates are inherently a function of the credit cycle, typically peaking at the end of recessions and declining during economic expansions. For example, the 2002 default rate for U.S. investment-grade issuers was substantially higher than its 30-year average. Default rates and recovery rates often exhibit an inverse correlation; during periods of high defaults, recovery rates tend to be lower, and vice versa. While default rates provide a historical record, rating migrations (the movement of ratings up or down) are considered a more reliable and timely indicator of changes in credit quality. This is because rating migration data is less susceptible to biases from changes in rating agencies' databases than historical default rates. Credit spreads generally tend to widen when the "ratings drift" (the ratio of upgrades to downgrades) deteriorates. This aggregate signal for the direction of credit quality across the market is a strong indication of rising systemic credit risk. Traders can potentially identify mispricing’s if market spreads do not adequately reflect the observed rating drift.

A crucial observation for tactical trading is that market spreads tend to overshoot at the end of credit cycles, particularly in the aftermath of a recession. For instance, despite historically high default rates in 1990/91, the average market spread for BBB-rated issues peaked at over 180 bps, significantly higher than the 115 bps actuarially required for medium-term bonds, suggesting the market was "too bearish". Conversely, in 1997, at the onset of a severe bear market for credit, spreads were too tight given the subsequent period of downgrades. This pattern suggests that periods of extreme spread widening might present attractive buying opportunities, while excessively tight spreads could signal impending deterioration. This highlights the importance of contrarian thinking at cycle extremes.

Credit Spreads and Valuation:

Valuation is a primary determinant of long-term market performance, complementing macroeconomic fundamentals and often overriding short-to-medium term technicals and market sentiment.

Fundamental Models for Corporate Bond Spreads:

A common approach to estimate credit risk is through z-scores, with Altman's five-component framework being particularly noteworthy. This framework, traditionally applied at the company level, can be adapted to the macroeconomic sphere to gauge the aggregate financial health of the corporate sector. A z-score below 1.8 typically signals financial distress for an individual firm, indicating a high probability of default within two years. At the macro level, it suggests a high probability of rising default rates and widening credit spreads. However, the direct application of the original Altman z-score to macroeconomic data has limitations; historical analysis shows that the aggregate z-score has often remained in the "distress zone" even when corporate America survived, suggesting the original weighting scheme may not be entirely appropriate for macro-level vulnerability. This highlights that static models may not capture dynamic economic realities and the evolving importance of various factors. To enhance predictive power, the model can be improved by adjusting the weighting scheme through regression methodologies and incorporating additional variables, such as oil prices, to capture external economic shocks. This refinement towards data-driven, adaptive modeling is essential for maintaining relevance in trading decisions. The formula for calculating the Altman Z-Score is:

Equity Prices and Volatility: Relationship and Implications:

Merton’s framework links a firm’s debt‑equity mix, equity valuation, and stock volatility directly to its credit spreads. When strong cash flows lift equity prices and compress volatility, default risk falls and spreads tighten. Yet this relationship can shift over the leverage cycle: from 1997 to 2000, soaring equity markets coincided with rapidly growing debt, driving credit spreads wider despite the stock rally. This decoupling underscores that equity signals alone can be misleading—traders must interpret them against the backdrop of evolving leverage and management’s financing choices. Equity volatility—gauged by measures like the VIX or equity‑option implied vols—offers a window into market risk appetite and uncertainty about future earnings. When implied equity volatility is low but credit spreads remain wide, it signals a disconnect between equity and credit markets and often precedes spread tightening. This misalignment can be harvested through relative‑value trades. Lower‑rated issuers are especially sensitive, since their embedded short‑put exposure on firm assets sits nearer the strike, amplifying moves in implied volatility.

Subscribe now

The Primary and Secondary Market:

The dynamics of bond issuance and activity in the secondary market significantly influence corporate bond performance, often driven by supply-demand imbalances and investor behavior.

Market Structure and Dynamics:

Corporate bond market structure—namely its average credit quality and sector mix—directly shapes spread volatility. Markets with weaker credit profiles or heavier cyclical exposure command wider spreads to compensate for greater risk. Take the Euro‑denominated market: its larger weighting in defensive financials and lower exposure to cyclical industries tends to produce tighter spreads and more muted volatility than in the U.S., where credit quality is lower on average and hedge‑fund activity is more pronounced. As a result, traders must calibrate their risk assumptions and tactical allocations by region. Moreover, rising liquidity and institutional sophistication in Europe could narrow this volatility gulf over time, creating attractive long‑term relative‑value opportunities.

Issuance Activity and its Impact:

Debt issuance patterns—particularly debt‑financed mergers and acquisitions—play a critical role in shaping credit markets. U.S. firms notably increased leverage in the mid‑1980s and late 1990s by swapping equity for debt, and restrictive bank lending or a slowdown in the commercial paper market can similarly spur bond issuance. Beyond sheer volume, issuance premiums—the gap between yields at deal pricing and secondary‑market levels—tend to widen during stressed periods, raising issuers’ funding costs but also attracting price‑sensitive, short‑term investors who bolster transaction volumes. Tracking these premiums and the mix of investors offers valuable insight into market absorption capacity and potential secondary‑market pressure.

Looking ahead, analyzing maturity profiles can reveal large waves of upcoming redemptions—such as the peak in 2004–2005—and, when paired with robust foreign demand from European investors and Asian central banks, a low net‑issuance environment can create a powerful tailwind for spread tightening.

Mutual Fund Flows and Market Impact:

Mutual‑fund flows offer a real‑time gauge of investor sentiment in the corporate bond market. Tracking monthly and weekly net inflows and outflows across asset classes—and drilling down into their sub‑sectors—uncovers spread movements driven by shifts in risk appetite rather than fundamentals, especially in high‑yield. Although flow data arrive with a lag, they illuminate long‑term trends in relative asset‑class attractiveness.

Crucially, outflows have a far greater impact on corporate bond yields than inflows, reflecting the asset class’s lower liquidity versus sovereigns or financials. In redemption episodes, managers often dump less‑liquid positions, exerting outsized price pressure. Traders must therefore factor in this asymmetry: negative flow patterns can trigger more dramatic spread widening than inflows produce tightening. The effect is magnified when funds hold concentrated stakes in individual issues, amplifying volatility in the less liquid corners of the market.

The Role of Ratings:

Credit ratings play a multifaceted role in the corporate bond market, influencing information flow, market perception, and investment strategies.

Reducing Information Asymmetry:

Credit Rating Agencies (CRAs) are pivotal in financial markets because they assess the creditworthiness of firms, thereby reducing information asymmetry between investors and corporations. The release of rating announcements can decrease volatility and narrow bid-ask spreads in the bond market. This effect is particularly pronounced when the market has already anticipated the announcement, suggesting that ratings provide a common, validated reference point that helps converge market opinions and improve liquidity. The stronger impact observed after downgrades implies that negative news, once confirmed by an agency, has a more significant effect on clarifying market uncertainty.

Furthermore, greater transparency and detailed information about firms' strategies contribute to higher quality information, leading to more accurate credit ratings. Rating affirmations, which confirm an existing rating, also provide value-relevant information to equity and debt investors and can lead to a reduction in bond yield spreads. This underscores that while traders may react to market signals before ratings, the official rating action still plays a role in solidifying market sentiment and enhancing liquidity.

Ratings and Credit Spreads:

Although lower ratings generally command wider credit spreads, substantial overlap exists across individual issuers. Divergences between agency ratings and market‑implied spreads can persist even after adjusting for liquidity or tax considerations. Market technicals and sentiment often drive these discrepancies—for example, Ford bonds have traded wider than similarly rated Renault issues—highlighting that traders must augment agency assessments with their own credit analysis. By focusing on market‑implied spreads, investors can identify relative‑value opportunities when these gaps emerge.

Liquidity also plays a pivotal role: large, recently issued bonds with active dealer support typically enjoy tighter spreads, whereas thinly traded issues may trade at an illiquidity premium despite sound fundamentals. In practice, spreads tend to widen for lower‑quality credits, emerging‑market debt, and longer maturities, so portfolio allocations and risk budgets should be calibrated accordingly.

Perspective of Buy-and-Hold Investors:

For buy-and-hold investors, typically private rather than institutional, the primary concern is whether the current spread adequately compensates for default and migration risk over the bond's life. These investors often utilize historical default probabilities and recovery rates, such as those compiled by Moody's, to calculate a "fair" spread that purely reflects credit risk.

The comparison between these "fair" spreads and actual market spreads reveals important dynamics. For investment-grade companies, required spreads based on historical default risk often come out significantly lower than current market spreads. This implies that investment-grade bonds frequently offer a "positive carry" over their actuarial default risk, providing a cushion that contributes to returns for buy-and-hold investors. However, for high-yield bonds, observed market spreads tend to be too low given the actual risk of default , indicating that a pure buy-and-hold strategy is generally not appropriate for this segment and necessitates active management to mitigate potential losses from defaults. This highlights the distinct investment approaches required for different credit qualities.

It is also important to note that investment restrictions, particularly those linked to ratings, can force investors to sell bonds if an issuer is downgraded below a certain threshold (e.g., investment grade). This forced selling can create temporary market dislocations and opportunities for active managers.

Perspective of an Active Manager:

Active managers typically operate with a short- to medium-term investment horizon, striving to generate excess returns against a defined benchmark. For these managers, rating migration risk (the likelihood of upgrades or downgrades) is a significant concern. Although rating agencies are sometimes criticized for lagging changes in credit quality , this very lag can present opportunities for active managers.

Active managers often utilize ratings in their trading strategies by identifying "fallen angels" and "rising stars". "Fallen angels" are bonds that have been downgraded from investment-grade to high-yield status. This downgrade often triggers forced selling by institutional funds with investment-grade-only mandates, leading to high volatility and creating potential investment opportunities for those able to acquire these bonds at temporarily depressed prices. Conversely, "rising stars" are bonds that were initially speculative-grade but have improved their financial standing sufficiently to be upgraded to investment-grade. Rising stars have historically outperformed the broader high-yield market both before and after their credit upgrade.

The "lagging" nature of ratings is thus not a weakness for active managers but an opportunity. They can anticipate rating changes by closely monitoring market signals (e.g., spreads, equity volatility) and company fundamentals, positioning themselves ahead of the official announcement. This allows them to profit from the market's potential overreaction to these events or by front-running anticipated rating actions. This strategy demands strong credit research capabilities to identify companies on the cusp of migration. The criticism that rating agencies are "too slow to react to changes in the credit quality" and that "market valuations are a better indicator for the drivers of credit spread changes" further reinforces the necessity for active managers to develop their own internal credit models and not solely rely on agency ratings for real-time trading decisions. Some active managers even establish their own credit rating targets for firms and adjust capital structure choices based on deviations from these targets.

Leave a comment

DISCLAIMER: We are not Financial Advisors, and all information presented is for educational purposes ONLY. Financial markets can be highly volatile, so good risk management is a must.

Leave a comment

4-Part Corporate Bond Primer Breakdown:

Part 1: Resources, terminology, big picture overview of corporate bonds and types of corporate debt.

Part 2: Macroeconomic environment and how it relates to corporate bonds, the credit cycle, valuation, credit default swaps, the primary and the secondary market, role of ratings.

Part 3: Credit research, top-down vs bottom-up research, types of analyses, risks associated with corporate bonds, bankruptcy in relation to corporate bonds and credit indices.

Part 4: Credit analysis and a real world case study on corporate bonds.

Resources:

Books-

Book #1: Investing in Corporate Bonds and Credit Risk by Frank Hagenstein, Alexander Mertz and Jan Seifert. This book helped me write this primer. I highly recommend it but you don’t need to have read this book or any of the other recommended books to understand this primer.1

Book #2: Bond Markets, Analysis, and Strategies, 10th edition by Frank J. Fabozzi and Francesco A. Fabozzi. This book isn’t specially about corporate bonds. However, there are several chapters covering corporate bonds in the book. It also covers credit default swaps which was helpful for the primer. If you’re interested in bond markets I highly recommend reading it.

Book #3: The Handbook of Fixed Income Securities, 9th edition by Frank J. Fabozzi, Steven V. Mann and Francesco Fabozzi. As my friend said in his book recommendation thread this book is the Bible for fixed income. It covers a wide array of topics related to fixed income, if you want a solid grasp on fixed income I can’t recommend a better book.2

Book #4: The Credit Investor's Handbook: Leveraged Loans, High Yield Bonds, and Distressed Debt by Michael Gatto. A great book that covers in depth high yield bonds, credit cycles and credit analysis. All of which helped with the writing of this primer. I also recommend this book especially if you’re interested in leveraged debt.

Subscribe now

Terminology:

In fixed income there is a lot of terminology and corporate bonds are no different. So to get the primer started I’m going to list what I think are some of the most important terms with their definitions.

Corporate Bonds Basics

• Corporate Bond: A debt security issued by a corporation to raise capital, typically offering a fixed interest (coupon) payment to bondholders.

• Issuer: The company issuing the bond to raise funds.

• Bondholder: The investor or entity that purchases the bond and is entitled to receive interest payments and the principal at maturity.

• Principal (Face Value): The original amount of money borrowed by the issuer, typically $1,000 per bond, which will be repaid at maturity.

• Maturity Date: The date when the issuer repays the bond’s principal to the bondholder.

• Carry: The income component of a bond's return, typically calculated as its yield minus a relevant financing rate. It represents the return earned if spreads and interest rates remain unchanged over a holding period.

Bond Yields and Pricing

• Coupon Rate: The annual interest rate paid by the issuer, expressed as a percentage of the bond’s face value.

• Yield to Maturity (YTM): The total return an investor expects to earn if the bond is held until maturity, including both interest payments and any difference between the purchase price and face value.

• Current Yield: A bond's annual coupon payment divided by its current market price.

• Yield Spread: The difference between the yield of a corporate bond and a benchmark (e.g., Treasury bonds) of a similar maturity, reflecting the credit risk premium.

• Discount Bond: A bond trading below its face value.

• Premium Bond: A bond trading above its face value.

• Accrued Interest: The interest earned but not yet paid since the last coupon payment.

Bond Risk Metrics

• Credit Risk: The risk that the issuer may default on interest or principal payments.

• Default Risk: A subset of credit risk, focusing on the possibility of the issuer being unable to meet its debt obligations.

• Interest Rate Risk: The risk that a bond’s price will decline due to rising interest rates.

• Duration: A measure of a bond’s sensitivity to changes in interest rates, expressed in years.

• Convexity: A measure of how the duration of a bond changes as interest rates change, capturing the curvature of price-yield relationships.

• Option-Adjusted Spread (OAS): The spread over a risk-free benchmark curve (e.g., government bonds) that equates a bond's theoretical price with its market price, after accounting for any embedded options like issuer calls or investor puts.

Bond Types and Features

• Investment-Grade Bonds: Bonds with high credit quality, typically rated BBB- or higher by agencies like S&P or Moody’s.

• High-Yield Bonds (Junk Bonds): Bonds rated below BBB-, indicating higher credit risk but offering higher yields.

• Callable Bond: A bond that the issuer can redeem before its maturity date, typically at a premium.

• Putable Bond: A bond that allows the bondholder to sell it back to the issuer before maturity.

• Convertible Bond: A bond that can be converted into a specified number of shares of the issuer’s stock.

• Zero-Coupon Bond: A bond that does not pay periodic interest but is sold at a discount and redeemed at face value at maturity.

• Secured Bond: A bond backed by specific assets as collateral.

• Unsecured Bond (Debenture): A bond not backed by collateral, relying solely on the issuer's creditworthiness.

Bond Market and Trading

• Primary Market: Where newly issued bonds are sold directly to investors by the issuer.

• Secondary Market: Where existing bonds are bought and sold among investors.

• Bid-Ask Spread: The difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask).

• Liquidity: The ease with which a bond can be bought or sold in the market without significantly affecting its price.

Credit Ratings and Agencies

• Credit Rating: An assessment of a bond issuer's ability to meet its debt obligations, provided by agencies like Moody’s, S&P, and Fitch.

• Default Rating: The lowest credit rating, indicating that an issuer has failed to meet its debt obligations.

Corporate Bond Covenants

• Covenants: Legal agreements in the bond contract that specify restrictions on the issuer to protect bondholders.

• Affirmative Covenants: Obligations the issuer must fulfill (e.g., maintaining financial ratios).

• Negative Covenants: Restrictions on the issuer’s actions (e.g., limiting additional debt issuance).

Share

Misc. Terms

• Indenture: The legal document outlining the terms and conditions of the bond.

• Sinking Fund: A fund set aside by the issuer to repay the bond at maturity or periodically.

• Call Price: The price at which a callable bond can be redeemed before maturity.

• Recovery Rate: The percentage of a bond’s value that investors recover in the event of a default.

• Reinvestment Risk: The risk that interest payments or principal repayments cannot be reinvested at the same rate of return.

Share Celeritas Capital

Big Picture Overview of Corporate Bonds:

Corporate bonds are debt instruments issued by corporations to raise capital. A wide range of companies—from airlines to tech giants—issue bonds to raise capital. These bonds enable companies to borrow funds from investors, who, in return, receive periodic interest payments, known as coupon payments, over a predetermined timeframe. The term "coupon payment" refers to the annual interest paid on the bond. At maturity, investors are repaid the bond's original value, also called the par value.

Typically, corporate bonds are issued in denominations of $1,000 unless otherwise specified. Detailed terms regarding payments, maturity, and other conditions are outlined in the bond's prospectus. In the event of a company's failure to pay interest or principal, bondholders can enforce their rights through legal proceedings. As creditors, bondholders have a higher legal claim on the company’s assets than shareholders, including preferred shareholders.

Why would a company intentionally take on debt? The answer is straightforward: they need capital for strategic purposes. A few of the most common uses of the cash gained from corporate debt includes to acquire another company, to refinance existing debt, investing into the companies services and to pay a dividend. A lot of work is required to find corporate bonds that fit into a rigorous risk management framework and that will make money. However we will ease into that in the next three parts.

It is important to know that corporate bonds are effected by the macro environment they exist in. More on this in part 2. If you think this is rather basic don’t worry in the next parts we will be getting deeper in the weeds. I just wanted to make sure everyone was on the same page.

Types of Corporate Bonds:

These bonds will be listed in order of most senior to least senior. So let us begin.

Senior Secured Bonds: In the world of fixed income a secured debt/bond is backed by some sort of collateral by the issuer. This collateral can be property, a factory pretty much anything that can be sold in case the issuer cannot keep their end of the deal. As for the term senior it simply means that this debt takes priority over all other capital holders. Senior secured bond holders have even more reassurance due to the fact their bond is collateralized. Generally speaking senior secured bonds tend to have a relative lower credit spread in comparison to subordinate debt. As you can see in Figure 1 below senior debt is the lowest risk and the group most likely to receive repayment if something happens to the company that issued the debt. Recovery Rate: 53%-62%.

Senior Unsecured Bonds: Senior unsecured bonds are extremely similar to their secured relatives in all but one key area. They don’t get the extra safety net of being collateralized. However they still are senior bond holders so they hold preferential claim in the event of a default. Recovery Rate: 40%-41%.

Junior/Subordinated Bonds: Next in the capital structure hierarchy are junior/subordinate debt. These bonds also have no collateral backing them making these types of bonds rather reliant on the issuers credit rating. Recovery Rate: 32%-33%.

Convertible Bonds: These are a type of bond issued by companies with the built in ability to be exchanged for common stock in the issuers company at an agreed upon date. Since these bonds are a type of hybrid security, their price is influenced by the issuing company's stock, offering investors additional flexibility. However, this flexibility comes with the trade-off of lower yields compared to similarly sized standard bonds, due to the embedded optionality of convertible bonds.

Preferred Equity: An equity instrument that has priority over common stock in receiving dividends and in a liquidation.

1

Investing In Corporate Bonds And Credit Risk

2.68MB ∙ PDF file

Download

Download

2

The Handbook of Fixed Income Securities, 9th edition

The Handbook Of Fixed Income Securities

38.5MB ∙ PDF file

Download

Download

---

DISCLAIMER: We are not Financial Advisors, and all information presented is for educational purposes ONLY. Financial markets can be highly volatile, so good risk management is a must.

Table of Contents:

Fixed Income Dashboard

US Treasuries

Yield Curves Dynamics

Corporate Bonds

Conclusion

Fixed Income Dashboard:

Subscribe now

US Treasuries:

The past week in the US Treasury market was characterized by significant sensitivity to political developments and a mixed bag of economic data. The week commenced with notable jitters in the bond market on Wednesday, July 16, following reports that President Trump was reportedly considering the dismissal of Fed Chair Jerome Powell. This speculation triggered an immediate and distinct market reaction: 2-year Treasury yields fell, while longer-term yields spiked. President Trump later denied this rumor which send yields back to their levels before the fake news about Powell being fired.

Share

As of July 18, 2025, key US Treasury yields stood as follows: the 10-year note concluded the week at 4.42% , the 2-year note finished at 3.86% , and the 30-year note closed at 4.99%. The 5-year note ended at 3.95%.

Treasury Auction Results:

A few auctions were held during the week, providing insights into demand for government debt. The 10-year note auction on July 15, 2025, cleared at a High Yield of 4.362% with an Interest Rate of 4.250%. The 30-year bond auction on the same day saw a High Yield of 4.889% and an Interest Rate of 4.750%, with a Bid-to-Cover Ratio of 2.38.

Yield Curves Dynamics:

The 2s10s yield curve rose from 53 bps to 55 bps this week. The 2s10s curve steepened slightly this week. I want to highlight that steeper yield curves are increasingly reflecting concerns about persistently large government deficits and the challenges of absorbing the ongoing supply of government bonds. This is particularly relevant for the longer end of the curve, where natural buyers, such as those matching long-dated liabilities, are becoming scarcer. This observation moves beyond the immediate impact of Federal Reserve monetary policy, which primarily influences the short end of the curve, and introduces the critical role of fiscal policy and government debt issuance. If the supply of long-dated Treasuries outstrips the demand from traditional long-term investors, then long-term yields must rise to attract alternative capital. This creates a direct relationship between fiscal policy (large deficits leading to increased bond issuance) and the shape of the long end of the yield curve (steepening). This steepening is fundamentally different from one driven by expectations of strong economic growth. For fixed income traders, this means that even if the Federal Reserve were to implement rate cuts (which would typically lower short-term yields and potentially flatten the curve), the long end of the curve might remain elevated or even rise further due to the persistent influence of fiscal pressures and supply dynamics. This implies a strategic preference for shorter-duration assets or curve-steepening trades, rather than simply betting on a bull-flattening scenario. It also underscores the increasing importance of monitoring Treasury supply announcements and investor participation in auctions, alongside traditional Fed-watching.

Leave a comment

Corporate Bonds:

Credit markets saw modest spread compression across the curve. The ICE BofA US Corporate Index option-adjusted spread (OAS) narrowed from 83 bps on July 11 to 80 bps by July 17, while Moody’s Seasoned Baa spread over the 10-year Treasury stood at 171 bps on July 17. Lower-rated investment-grade, BBB-rated bonds traded near a historically tight OAS of 101 bps, underscoring stretched valuations. . High-yield credit also saw slight tightening, with the ICE BofA US High Yield OAS edging down from 297 bps on July 11 to 291 bps by July 17. Investors remain drawn to junk yields in the 7–8% range, fueling robust demand despite tariff-related volatility.

Subscribe now

Conclusion:

That is all for this week, I hope you found it helpful. Also be on the look out for a primer on corporate bonds in the next week or so. I’m nearly finished with part 1 and part 2 of the primer. If you have any questions please leave a comment!

DISCLAIMER: We are not Financial Advisors, and all information presented is for educational purposes ONLY. Financial markets can be highly volatile, so good risk management is a must.

Table of Contents:

Fixed Income Dashboard

US Treasuries

Yield Curves Dynamics

Corporate Bonds

Conclusion

Fixed Income Dashboard:

I have been messing around with the fixed income dashboard this week. I added the 5-year, 5-year forward inflation expectation rate to the dashboard and I added some conditional formatting. If you have any thoughts on the dashboard changes or just in general please leave a comment or shoot me a message.

Subscribe now

Share

US Treasuries:

Even with a short week this week, the US treasury market was still interesting to observe. This week Treasuries experienced several crosscurrents that underscore why this market is so critical to key an eye on, not just to fixed income investors but to global risk sentiment overall. Early in the week, softer ADP private payroll data hinted at potential economic cooling, briefly pushing 10-year yields above 4.30% before retracing the next day. (Figure 3)

However, Thursday’s nonfarm payrolls came in stronger than consensus, with 147,000 jobs added. That single data point quickly recalibrated market expectations for the Fed—essentially flattening the probability curve for a July rate cut. Yields shot higher across the curve in response. This tug-of-war shows how every data release can drive rate repricing, especially in an environment where inflation has proven sticky, and the Fed remains highly data-dependent.

Auction Recap:

The 2-year and 5-year auctions this week cleared smoothly, with strong indirect bidding (foreign central banks, reserve managers). In contrast, the 7-year auction was sloppy, tailing by nearly 2 bps, indicating hesitation around locking in medium-term rates. Bills continue to see near-record demand as money market funds rotate cash into higher-yielding instruments. Another interesting note is that across the curve there’s been more auctions for all maturities. (Figure 4)

Positioning and Liquidity:

Primary dealers have taken on heavier inventory in the belly of the curve (3–7 years), partly because of recent supply. According to JPMorgan’s Treasury Client Survey, dealers reported higher-than-average net longs in the 5- to 10-year bucket. Futures open interest also shows a steady increase in long positions, especially for the 2-Year and 10-Year Bond. (Figure 5)

Liquidity metrics have worsened slightly in off-the-run Treasuries. The average bid-ask spread is wider than in early Q2. This fragility creates exaggerated moves when big data prints hit. For traders, that means volatility is here to stay—and with it, opportunity and risk in equal measure.

A Quick Note on Foreign Buyers:

One under-discussed element driving Treasuries is the behavior of foreign official accounts especially from Japan and China. As yields have climbed on the 10-year, buying interest from overseas reserve managers has increased. The yen’s recent slide has prompted Japanese investors to hedge currency exposure more aggressively or to stay in domestic JGBs. That reduces a historically steady bid for Treasuries. China’s holdings have been slowly declining for over a year, reflecting diversification out of U.S. assets and an attempt to manage their own currency and reserves.(Figure 7) Meanwhile, European investors have continued to participate, attracted by yields that remain well above Bund and OAT equivalents. (Figure 7) This global buyer mix means that Treasury auctions can be unpredictable—sometimes seeing robust demand from Europe and Middle East accounts, other times weaker coverage as flows move elsewhere.

Subscribe now

Yield TA:

Lets take a look at some technical analysis for the US 2-Year bond yield. (US02Y) This week was a much better than last week for yields likely due to the economic data as mentioned earlier. The US02Y had three green days this week. (Figure 8) On Thursday the US02Y test the 55d EMA at 3.91% and got rejected. (Figure 8) This was one of the resistance levels we mentioned in last weeks Fixed Income Friday. (Figure 8) For support levels to watch next week we have 3.830%, 3.775% and 3.654%. (Figure 8) As for the resistance levels to keep an eye on next week there’s the 55d EMA at 3.9%, 4.060% and 4.166%. (Figure 8)

Now moving onto the US 5-Year bond yield. Support levels to watch for next week are 3.867%, 3.552% and 3.452%. (Figure 9) The resistance levels for next week are the following, first the 55d EMA at 3.975% is certainly a level to watch for a retest. (Figure 9) 4.152% is the next resistance level and finally there’s 4.377%. (Figure 9)

The US 10-Year bond yield also advanced this week. Ending the week at 4.348%. Some support levels to watch for next week are 4.220%, 4.144% and 3.975%. (Figure 10) As for the resistance levels we again have the 55d EMA at 4.365%, 4.506% and 4.257%. (Figure 10)

Next up we have the US 20-Year bond yield. (US20Y) Something I find interesting about the US20Y is that this week is closed exactly at the 55d EMA which was highlighted last week. (Figure 11) Support levels for next week are 4.752%, 4.537% and 4.450%. (Figure 11) The resistance levels are 4.927%, 5.087% and 5.118% (Figure 11)

Finally we have the 30-Year US bond yield. (US30Y) The US30Y closed above a key resistance level this week. With the yield closing at 4.862%. For support levels there is the 200d EMA at 4.865%, 4.570 and 4.300%. (Figure 12) For resistance levels there is 5.005%, 5.155 and 5.223%. (Figure 12)

Leave a comment

Yield Curves Dynamics:

When I talk about yield dynamics, I’m referring to the interplay of factors that set Treasury yields every day. Remember that Treasury yields are not static—they’re constantly shaped by the following. Federal Reserve policy expectations, inflation and growth data, supply and demand for Treasury securities, market technicals and positioning. As well as term premium. (the compensation for lending long-term in an uncertain world) The Federal Reserve is an extremely powerful driver of the yield curve. Short-term yields (1m to 2y) are heavily anchored by the Fed’s current policy rate and its projected path. When the Fed hikes or cuts, or signals that it will, traders immediately reprice the front end.

2s10s:

The 2s10s which is the spread between the 10-Year US Treasury and the 2-Year US Treasury has narrowed this week to 462 bps. The 2s10s is currently in a bear flattening regime, which is when short-term rates rise faster than long-term rates, tightening the spread as yields climb.

Yield Curve:

Corporate Bonds:

This week in corporate credit was defined by three key dynamics. Sustained strong demand—especially in the high-yield sector. Muted new issuance at the long end of the curve. Yield spreads that remain tight relative to historical averages. Lets dig into these topics.

Investment-Grade (IG) Corporates:

Yields remain attractive with the BofA AAA Corporate Bond Effective Yield ending Wednesday at 4.76%. Spreads for IG corporates tightened this to 32 bps. (Figure 14) Why are spreads so tight? Well first, there are strong balance sheets across the IG Universe. Many large issuers are flush with cash from pandemic-era cheap financing. Next, resilient earnings: S&P 500 companies reported surprisingly strong earnings in Q2 guidance, easing fears of an imminent downturn.

High-Yield (HY) Corporates:

HY bond yields fell this week with the BofA US High Yield Index Effective Yield falling to 6.79% which is still relatively active. Spreads tightened to 2.88% this week. One interesting note for HY/Junk bonds is June was busiest month for the EU junk bond market ever. (Figure 15)

Share

The Long End: A Missing Market?

One of the most fascinating trends in corporate credit is the collapse in long-term issuance. IG issuance beyond 10 years totaled just $4.5 billion in June—the lowest monthly tally since last December. (Figure 16)

Conclusion:

Thank you for reading this weeks Fixed Income Friday. I hope you found it to be helpful, if you have any suggestions please leave a comment or send me a message.

Leave a comment

DISCLAIMER: We are not Financial Advisors, and all information presented is for educational purposes ONLY. Financial markets can be highly volatile, so good risk management is a must.

Main Fund Performance:

Again I’m making a slight change to how the Main Funds performance is displayed. The chart below shows the Main Funds performance during this year. (Figure 1) We are currently up 17.7% YTD. (Figure 1) The total P&L for the fund is around 52% since inception. June was a pretty decent month for the Main Fund. YTD we have out performed the S&P 500 by 12.32%.

Subscribe now

Option Fund Performance:

The first month for the option fund was decently successful. There was definitely some mistakes made on my part while trading this month but we will get into that in the next section. For it’s first month the Celeritas Option Fund ended positive with a gain of approximately 4%. (Figure 2) This is down from a high of 6.54% earlier in the month. (Figure 2)

Reviewing Trades:

Main Fund Review:

First we will review the trades from the main fund. Below is Figure 3 which shows the trades that were closed in June. (Figure 3)

Share

Now lets take a closer look at the gold futures trade. I entered this trade on May 28th, the main reason I took this trade was technical reasons. I did close this position too early with hindsight but that is just part of trading. (Figure 4) Overall I’m happy with the gains from this trade.

My personal favorite trade this month was a long mini S&P 500 futures position. (/MES) I’m still currently long 5 /MES contracts but I will touch on that later. The reasons I entered this trade are simple, the first and main reason was due the fact of liquidity and growth both being very strong at the moment. Thus making it easier for a equity melt to happen due to investors being underweight or short. I also entered the trade for technical reasons. I will keep buying dips on /MES for at least the next couple of months as I think the US economy is rather strong currently and I see more upside for equites. It is very likely since the market just hit a new all time high that we will see traders and investors who weren’t long equites into the rally start to pile into equites so they can chase the returns.

Leave a comment

Option Fund Review:

Below is figure 6 which shows all the option trades for the month of June. (Figure 6) I am not super happy with the trades this month but you live and you learn. Here’s to the month of July. Lets review some of the more successful trades from June.

First I want to highlight the option trade. On May 21st I sold calls with a strike of 435 and an expiration of June 13th. I also bought puts with a strike of 395 and the same expiration as the calls. My reasoning behind this trade was because BTC was nearing a key resistance level. was trading at a premium when compared to BTC as well. (BTC and are highly correlated) I sold 5 calls for 14.55 ($1,455) and bought back 2 contracts for 1.13. ($113) I bought back the final three contracts for 0.09 ($9) giving us a return of $7,022 for the five calls. (Figure 7) Unfortunately a size able amount of the gains from the calls were wiped out by losses from the puts. The final P/L for this trade was $2,112.

If your interested in more information regarding and why it’s trash company, be sure to read my post on below.

Next lets take a look at the next trade which is an call option. On May 21st I bought three contracts for calls at with a strike of 435 expiring June 20th. I bought these calls to gain exposure to tech and because of technical reasons. The calls were bought for 12.25 ($1,225) and I sold the first contract for 24.85 on June 3rd. (Figure 8) The final two contracts were sold for 20.50 on June 11th, this gives a P/L of $2,910 which is not bad at all. (Figure 8) I should have left one contract as a runner and moved my stop loss to breakeven so I could have captured more upside.

Subscribe now

The final trade I would like to take a look at is a /MES option trade. On May 28th I bought seven /MES puts with a strike of 5950 and an expiration of June 6th. The reason I took this trade was to hedge my long equity position in both funds. The puts were bought for 25.00 ($125) each contract. (Figure 9) On May 30th we got a decent dump on /MES so I sold 4 contracts for 84.50 ($422) and finally I sold the last three contracts on June 3rd for 30.50 ($152) giving us a P/L of $1,250. (Figure 9)

Current Fund Holdings:

Figure 10 shows all of are currently open positions in the main fund. (Figure 10) The largest asset class in the fund is currently futures with 4 positions making up 31% of the fund. (Figure 11) In the next month or so I plan on picking up some more US equites to diversify the fund.

Conclusion:

Thank you for reading this months Celeritas Capital Fund Review. If your interested in getting our trades sent to you in real time please join my Substack chat by clicking the button below. Good luck trading this month everyone! Make sure you keep an eye on the yield curve as it will be a key signal to watch.

DISCLAIMER: We are not Financial Advisors, and all information presented is for educational purposes ONLY. Financial markets can be highly volatile, so good risk management is a must.

Leave a comment

Table of Contents:

Fixed Income Dashboard

US Treasuries

Yield Curves

Corporate Bonds

Conclusion

Fixed Income Dashboard:

Below is a fixed income dashboard that I recently created. (Figure 1) It contains some of most important data related to the world of fixed income. Do you think I’m missing anything important on the fixed income dashboard? If so please let me know. If any data looks incorrect please let me know, this is my first time using the FRED Excel add-in so there might be some mistakes. An important note about the fixed income dashboard, this is all US data.

Subscribe now

US Treasuries:

U.S. Treasury bonds enjoyed strong gains this week amid growing signs of a slowing economy and shifting rate expectations. A key catalyst this week was the third GDP estimate for Q1, revealing a negative print of -0.5% significantly weaker than forecasts. (Figure 3) The GDP data showed that US consumers drastically decreased their spending earlier this year. In fact, first-quarter consumer spending fell to its lowest level since the pandemic ended, with Americans particularly cutting back on recreation and dining.

Combined with weak home and durable goods orders, investors increasingly priced in a potential Federal Reserve rate cut. Not to mention that President Trump has been not so subtly hinting that Powell is almost certainly going to be replaced at the end of his term. (Powell is likely to be replaced by someone who is more likely to follow President Trumps suggestions in regards to cutting rates.) The result: Treasury prices rose, yields declined across the curve, and the 10-year yield dropped mid-week before modestly rebounding.

International investors continued to show appetite for Treasuries:

Japanese investors increased buying as a hedge against local currency strength. European demand remained steady.

Given the dollar’s slight weakening late in the week, buying Treasuries was seen both as a safe haven and a yield pick-up over European sovereign bonds, where yields remain comparatively lower (e.g., German 10-year Bunds at ~2.58%.)

While strong demand remains for Treasuries, the Treasury Department’s new issuance schedule continues to grow:

This week included $70 billion in 2-year and 5-year note auctions, both met with healthy bid-to-cover ratios, indicating solid demand. However, the record fiscal deficit projections are raising questions about how much more supply will eventually pressure yields higher.

Share

Yields:

Now lets take a quick look at the US Treasury yields. First, we will start with the US 2 Year bond yield. (US02Y) The 2 Year yield has been taking a beating recently with the previous 7 trading session (not including today 6/27/25) all closing red. (Figure 4) However today yields finally caught a bid including the US02Y. The first key support level is at 3.65% with the next major support being at 3.55%. (Figure 4) Resistance is at 3.82%, 3.91% (55d EMA) and 4.06% (200d EMA).

Now onto the US 5 Year bond yield (US05Y) technical analysis. US05Y has also had a rather rough time these last 7 trading sessions. With the past 5 out 7 trading sessions ending with US05Y closing red. (Figure 5) The first support level is 3.79% followed by 3.56% and 3.45%. (Figure 5) As for the resistance levels first we have 3.9% (55d EMA) and the next resistance level is at 4.1%. (Figure 5)

Onto the US 10 Year bond yield. (US10Y) Similar to the 2 year and 5 year the 10 year bond yield has closed red for 5 out of the past 7 trading sessions. US10Y recovered slightly during todays trading session with the yield increasing by 68bps at the close. (Figure 6) The first support level for US10Y is at 4.24%. (Figure 6) Next we have a support level at 4.19% and the final significant support is at 3.97%. (Figure 6) As for the resistance levels up first we have 4.33% (200d EMA) followed closely by the 55d EMA at 4.37% and finally we have some resistance at 4.5%. (Figure 6)

The past 7 trading sessions for the US 20 year bond yield (US20Y) has been rough. Again of the 7 most recent trading sessions US20Y closed red 5 out 7 times. US20Y gained 60bps today. (Figure 7) Support levels are as follows 4.73% (200d EMA), at 4.53% we have a seemingly strong support and finally we have some support at 4.32%. (Figure 7) Now moving onto some resistance levels, lets start by highlighting the resistance at the 55d EMA which is at 4.86%. (Figure 7) The next resistance level I’d like to highlight is 4.95% and finally we have 5% as the final resistance level. (Figure 7)

Share Celeritas Capital

Finally we have the US 30 Year bond yield. (US30Y) Again like the entire curve the US30Y had a tough time in the 7 most recent trading sessions. In fact, the US30Y did slightly worse than the 10 Year and 20 Year yields, with US30Y closing in the red 6 out 7 times in the 7 most recent trading sessions. Support levels are 4.68% (200d EMA), 4.57% and 4.50%. (Figure 8) As for the resistance levels first I’d like to draw attention to how today US30Y was rejected at 4.85% (55d EMA). (Figure 8) I believe we will see some more upside on the US30Y if we close above 4.85%. The final resistance level I’d like to highlight is at 5%, in my view it will be hard for the US30Y to maintain above 5% a yield. (Figure 8)

Yield Curves:

The Treasury yield curve is the graphical representation of yields across maturities, from short-term bills (like the 3-month) to long-term bonds (like the 30-year). Under normal economic conditions, the yield curve slopes upward, meaning longer-term bonds yield more than short-term ones. This makes intuitive sense: investors usually require higher returns for locking up their money longer and taking on more inflation and uncertainty risk.

Lets take a look at how the curve has changed so far this year.

• Short-term maturities (1M–6M): Yields declined steadily over time. The most recent yield (June 27) shows 1M at 4.142%, down from 4.311% in January. (Figure 9)

• 1–2 year maturities: Clear drop in yields over the period—especially notable in the 2Y, falling from 4.283% in January to 3.746% in late June. (Figure 9)

• 5–10 year maturities: Also declined but less dramatically.

  • 10Y yield fell from 4.602% in January to 4.275% now. (Figure 9)

• Long-term maturities (20Y–30Y): Much flatter behavior, with the 30Y yield staying between ~4.81%–4.96%. (Figure 9)

While the yield curve remains in a "normal" upward-sloping configuration (longer-term yields are higher than shorter-term yields), the steepening observed this week suggests a market grappling with conflicting signals. On one hand, there's a growing belief that the Federal Reserve will eventually ease monetary policy to support a slowing economy. On the other hand, persistent core inflation figures mean that the path to lower long-term rates might not be a straight line. The bond market is attempting to price in both the potential for easing and the continued presence of inflationary pressures, creating a dynamic and at times, volatile, yield curve.

Subscribe now

Corporate Bonds:

The corporate bond market demonstrated resilience and strong demand this week, with significant issuance activity, particularly from overseas borrowers. Investment-grade corporate bond issuance is pushing the first-half 2025 volume past last year's pace and marking the second-highest first-half volume on record, trailing only 2020. This robust supply was met with equally strong demand, leading to relatively muted spread widening to 89bps, while yields fell to 5.42%.

A notable trend this week was the presence of Japanese automakers, Honda Motor Co. and Toyota Motor Corp., tapping the US dollar bond market. Honda issued a $3 billion three-part deal, while Toyota printed a $1.5 billion three-part note. Other significant issuers included Imperial Brands, a UK tobacco company, with a $2.2 billion offering, and US semiconductor company Marvell Technology, which kicked off the week's supply with a $1 billion deal. The sustained investor appetite for attractive yields continued to compress new issue concessions, averaging below 2 bps for the eighth consecutive week, a phenomenon not seen since mid-2021.

The high-yield segment also saw significant activity. Spreads tightened to 304 bps, and yields dropped to 6.84%. This was largely driven by strong demand and continued inflows into high-yield funds, as investors sought higher returns in a yield-hungry environment. The underlying strength of corporate fundamentals, including robust revenue and EBITDA growth and low default rates, further supported the positive sentiment in the corporate bond market.

Conclusion:

As the fixed income market heads into the second half of 2025, the focus will remain squarely on inflation data and the Federal Reserve's response. The coming weeks will likely see continued speculation regarding the timing and magnitude of potential rate cuts. Geopolitical developments, especially related to tariffs and international relations (e.g., Israel vs Iran), will also be closely watched as they have the potential to impact market sentiment and inflation expectations. We will need to navigate this dynamic landscape with careful consideration of both macroeconomic trends and central bank policy signals.

Thank you so much for reading this weeks Fixed Income Friday! If you have any feedback please leave a comment below or shoot me message. Do you think I missed any important fixed income data points? Please let me know, I would be happy to add a section for Muni’s or MBS if that is something you guys are interested in. Finally be on the lookout for a new equity deep dive and I will finally be finishing the corporate bond primer.

Leave a comment

DISCLAIMER: We are not Financial Advisors, and all information presented is for educational purposes ONLY. Financial markets can be highly volatile, so good risk management is a must.

First, I want to sincerely apologize for my absence this year—and for the lack of posts throughout 2024. My health took an unexpected turn, which significantly limited my ability to write and stay active in the markets. Earlier this year, my condition worsened, and I had to step away from trading—and most things—for several months. I’m incredibly grateful to be back and truly appreciate everyone who stuck with Celeritas Capital. Your continued support means a lot.

It’s been a while since we’ve updated readers on the performance of the Celeritas Fund. As you may have gathered from the title, we’re now adding an options portfolio. Since TradingView doesn’t support options trading, I’ll be using ThinkorSwim for this part of the strategy. The starting balance for the options account is $100,000.

Subscribe now

Going forward, the TradingView and ThinkorSwim portfolios will be presented separately in our fund reviews. The original TradingView paper trading account will now be referred to as the “Main Fund”, which will feature longer holding periods and a focus on macro-driven trades. The new options portfolio will be called the “Options Fund”, and it will focus on shorter-term, more tactical trades with less emphasis on macro themes.

Main Fund Performance:

I’ve switched up the chart we are using I thought showing of percentage would be more inline with standards. (We are working on upgrading our graphics like charts currently. If you have any experience creating amazing looking charts send me a message)

As you can see above, the Celeritas Main Fund is performing quite well, with a current return of 42.99%. Since the fund’s inception, the S&P 500 has returned only 20.98%, making our performance more than double that benchmark.

Although my health was my top priority this year and limited my ability to trade actively, I was still able to capture a significant move in copper—more on that shortly.

Reviewing Trades:

Since I’ve unintentionally been neglecting updates on the Celeritas Main Fund, I won’t be posting every trade in this update. (If you'd like to review the trades in detail, feel free to message me.) I’ll return to posting all trades in the next Celeritas Fund Review.

Now, let’s break down my long copper futures trade.

I entered this trade for several reasons. A few days after Liberation Day, nearly everything was down—including copper. Even before then, I had been eyeing the $4.20–$4.00 range as a potential buying zone. When prices dipped into that level, I was ready to act.

Leave a comment

What ultimately convinced me to pull the trigger was a shift in my outlook on the tariff policy. It became clear to me that the current administration couldn’t fully commit to the original tariff plan. Yields had surged, and the market had dropped faster than Elon Musk’s rocket on May 27th, 2025. My view at the time was that some form of tariff softening was likely.

So, on April 7th, I went long copper via futures contracts, entering at 4.1660 with a position size of one contract. Just two days later, on April 9th, the administration announced a 90-day pause on any additional tariffs beyond the base 10% rate.

Boom—thesis confirmed. The trade paid off.

The next trade to review is a long position in the 5-Year U.S. Treasury Bond Futures contract (ZF).

The reasoning behind this trade was twofold: First, my momentum model issued a long signal, and second, I believed that bond yields had peaked in January. Admittedly, I didn’t catch the signal right away—I noticed the model had triggered a day after the fact—but I still entered the trade.

While I could’ve captured more upside had I been more attentive to the markets at the time, I’m still satisfied with how this trade played out, all things considered.

The final trade I want to highlight is a Fed Funds futures trade.

Following Liberation Day, the market began aggressively pricing in significant rate cuts in the July 2025 Fed Funds contract (ZQN2025). At the peak, the contract was implying three cuts—or 72 basis points—in just three meetings. In my view, this was highly improbable. I didn’t believe the tariff situation alone would be enough to force the Fed’s hand so quickly.

While I missed the opportunity to fade the extremes, I still entered a short position at 96.130. I later exited at 95.715, locking in a profit of $1,729.30.

Subscribe now

Current Portfolio Holdings:

As shown above in Figure 5, these are the current holdings of the Main Fund. At present, we’ve deployed capital across several asset classes (Figure 6). The two largest allocations are in U.S. equities and futures, with four positions in each (Figure 6).

The fund also holds two European-listed stocks, representing 16.7% of total holdings, as shown in Figure 6. Additionally, we have one U.S.-listed ETF and one FX position, each accounting for 8.3% of the portfolio. Altogether, the Main Fund currently holds 12 positions.

Option Portfolio Holdings:

Option portfolio is doing decent so far, we will see what’s to come.

Conclusion:

More trades for both funds coming soon. I will try my best to send when I open a new trade in the chat.

Any feedback is always welcome, feel free to leave a comment or send me a message. Thank you so much for reading!

DISCLAIMER: We are not Financial Advisors, and all information presented is for educational purposes ONLY. Financial markets can be highly volatile, so good risk management is a must.

The Money Machine Newsletter is a Substack we recommend 100%. At Celeritas Capital we are always sure to read their newest post. Let me tell you a little bit about what they are all about.

It’s designed to help you become a smarter, independent investor with two things:

1. Market-beating stocks in a 5-min read. Picked by elite traders. Delivered weekly to your inbox pre-market.

2. Market, investing, and business insights from insiders and experts outside the mainstream media.

You won’t find the same watered down stock picks like other services. Nor will you find the same regurgitated mainstream media information here. You’ll find actionable insights in the . If you like what you read today make sure you subscribe below.

Money Machine Newsletter

Market-beating stocks in a 5-min read. Picked by elite traders. Delivered weekly to your inbox pre-market.

I’ll let Money Machine Newsletter take it from here…

This week’s market, investing, and business insights from insiders and experts outside the mainstream media:

1. Google’s cash machine got a rewrite and most missed it.

2. Our gene tech could become China's gold rush.

3. Downbeat energy stock with high upside potential.

4. $35 popcorn and the business is BOOMING.

And more. Let’s get to it!

Top Insights of the Week

1. 😳 We Called It: Google’s BIG Shift

• Google’s been printing money off search ads for two decades. That’s changing...

  • At their I/O event, they introduced something called AI Mode. No more long list of links. No more ads shoved in your face. Just straight answers.

  • It’s smoother for users. But rougher for the ad business.

  • They also rolled out a $250/month bundle. YouTube Premium. Cloud storage. AI tools. Even a video generator. No ads. Just subscriptions.

• Why? Because they see what’s coming… we called it out a few weeks back, while the mainstream media was asleep at the wheel… here’s the gist…

  • AI answers don’t play nice with ads. You can’t stick a banner in the middle of a clean response. It breaks the flow. So Google’s shifting. Away from clicks. Toward subscribers.

• They’re not chasing ChatGPT. They’re outgrowing themselves. Breaking the old model before it breaks them. The search box will stick around. But the business behind it? That’s getting rewritten.

• This was the week Google stopped tweaking the past—and started betting on the future.

2. 🔬 Our Science Is China’s Payday

• There’s a baby alive today because someone changed one letter in his DNA…

  • He was born with a rare mutation. One typo in his genetic code. That tiny error stopped his liver from clearing out toxic waste. Ammonia built up in his blood. No fix meant brain damage. Or worse.

  • But a group of researchers didn’t wait around. They used CRISPR—gene editing tech—to fix the single broken letter. Not in a lab. Not in theory. In his body.

• They wrapped the edit in liquid nanoparticles. Injected it into his blood. It found its way to his liver. Made the change. No side effects.

• This kind of “one-letter typo” causes up to +10,000 genetic diseases. We’ve barely scratched the surface…

  • Imagine a future where we fix disease with code, not pills. Change the sentence. Not just manage the symptoms.

• But this tech is expensive. Many families can’t even afford the gene tests, let alone the treatment. Meanwhile… China’s catching up fast—building biotech firms using U.S. research. Copy. Paste. Profit… If we’re not careful, we’ll invent the cure... and they will own it.

3. ⚡️ Downbeat Energy Stock With High Upside Potential

• First Solar’s not your typical panel pusher. It’s one of the last U.S.-based solar manufacturers standing. No China reliance. No copycat parts…

  • What stands out for them? Their thin-film tech… sleeker, lighter, lower carbon footprint. Built different — and patented like crazy (1,600+ of 'em).

• Solar global market expected to reach $436B by 2032. And First Solar’s in the thick of it…

  • Revenue jumped ~25% last year. Profits? ~Up 55%.

  • Dropped $500M on a new R&D lab.

  • Cracked 23.1% efficiency on their CdTe cells — a new record.

• Risks?

  • On going tariff uncertainty. Q1 earnings missed by ~23%. Guidance got cut.

  • The Inflation Reduction Act used to be a tailwind. Now it’s at risk — some want it repealed or trimmed down.

  • Global politics, cheaper rivals, and tech shifts. But the potential? Massive… This is a high-upside bet on American energy, backed by brains, patents, and policy (as of now).

• Become a premium subscriber and get alerted when this stock triggers our setup for entry point, target price, and stop loss.

Top 3 Charts of the Week

1. 🎢 Theme Parks Are Disney’s Cash Cow

• Comcast just opened Epic Universe, its biggest theme park ever—costing ~$7B—with rides based on Nintendo and other big franchises.

• They’re taking a swing at Disney’s turf. But Disney still dominates, with 8 of the 10 most visited parks and ~$9B in theme park profits last year.

• While streaming is shaky, theme parks print money. Both giants are betting people will keep paying $35 for popcorn and hundreds for a thrill.

2. ❌ The Big Tech Job Freeze Era

• Big Tech keeps cutting jobs. Over 22,000 U.S. tech workers were laid off in 2025. Companies like Microsoft, Google, and Meta are shrinking. Even solid roles aren’t safe.

• AI is changing who stays and who goes. If you’re building AI or chips, you’re in demand. If not, your job may be on the chopping block—or never open up at all.

• The job market’s shifting. Fast. It’s not just about layoffs—it’s about where the future jobs aren’t.

3. 👟 Hoka Closes in on Ugg

• Hoka, the fast-growing running shoe brand under Deckers, saw sales jump to $2.23B—but growth is slowing. It went from 58% to 28% to 23% in the past three years.

• Deckers gave no forecast for next year, blaming global trade issues. That spooked investors. The stock dropped 22% in a single day and is down over 50% this year.

  Join 6,000+ self-directed investors who have already placed themselves on the path to greater wealth by making $500, $1,000, $2,000, $3,000, or more every month with Money Machine Newsletter’s trade ideas.

Hello and welcome back to Celeritas Capital. I do apologize for the lack of content I have no excuses for you. That being said I do plan on writing a lot more in 2025 and I thought what better topic to kick the year off than something that was all the talk last year. Although I do think I have a interesting article about MicroStrategy for you all. But before we start I must give credit where it is due this post is inspired by a YouTube video by Mark Meldrum he posts great videos on finance and I highly recommended you check out his channel. The math and examples you will see in this post are drawn from his video the rest of the post is my work. I hope you enjoy this article and as always please feel free to leave a comment with your thoughts.

Subscribe now

I am sure that the majority of you have heard of MicroStrategy but for those unaware MicroStrategy turned heads on Wall Street in 2024, with its stock skyrocketing 334% over the last year. Once an average software company in Virginia, it has ditched its original focus to chase the hype of digital currency especially Bitcoin. Under the leadership of founder Michael Saylor (who had a civil injunctive action from the SEC in the year 2000), the company has gone all-in on Bitcoin, doubling down on a high-risk gamble that has overshadowed its actual business by orders of magnitude. While may be listed as a software company it is best to think of them more as a Bitcoin holding vehicle. In fact doesn’t make any money from selling software quite the opposite the company loses hundreds of millions of dollars a quarter on their software business.

Share

Some of you might be thinking well why would anyone buy shares of a company whos entire existence revolves around being a Bitcoin holding vehicle? Especially when Bitcoin Exchange Traded Funds(ETFs) exist, well Bitcoin ETFs are rather new with the first batch only starting trading on January 10th 2024. While has been buying and holding Bitcoin since August 2020. The idea at least according to and their management was to open up the crypto market to institutional investors who couldn’t directly buy Bitcoin themselves due regulations. It also gave the opportunity to retail investors to get exposure to Bitcoin if they didn’t have the technical knowledge to buy it themselves. In the past few years has become one of the main crypto stocks that is watched by the market. Now for the juicy part, is a huge scheme that requires new investors to make the old ones whole. Let me explain.

Leave a comment

The Problem:

In ’s last quarterly earnings report they had some very creative graphs. The first I’d like to show you is something calls “Intelligent Leverage” but I’d like to make the argument that this isn’t actually leverage.

Above is the first graph we will be looking at the so called “Impact of Intelligent Leverage” when you look at it from a surface level it does look like has increased their Bitcoin per share. After all they increased their Bitcoin holdings by 33.3% and share count only by 13.2%. If you had bought a share of on 12/31/2023 and one on 9/30/2024 since the asset count aka the Bitcoin count is growing faster than the share count the asset value per share is increasing and it should be.???? Let me pull back the curtain for you.

This simple example will show you how this so called leverage is achieved on the backs of newer investors. Imagine a company that has 10 units of some crypto currency valued at one dollar per unit of crypto. In the first table you can see these 10 units listed under assets. (Figure 2) This company also has 1000 shares valued at 50¢ and the company of course wants to increase its asset count. “Lets buy 10 more” the CEO says. Then he remembers his company doesn’t actually make money they do the opposite they lose a lot of it. No matter, the cunning CEO thinks as he hatches a simple yet brilliant plan. “We are going to raise $10 in convertible debt” exclaims the CEO. As you will remember this companies shares are valued at 50¢ a share meaning that $10 will be 20 shares. After a successful convertible debt sale the company uses its newly found $10 to buy 10 more of the aforementioned crypto currency. This is shown is the second table directly below the first. (Figure 2) After this purchase the asset value increases by 100% and the share count increased by 2%. Originally when the company had the 10 units each share of the original 1000, represented 1% ownership of 1 unit. After the purchase of the next 10 units each shares ownership went up to 1.9% of 1 unit. Which is a 90% improvement in asset value per share via the use of convertible debt.

What is the issue I’m sure some of you are thinking. Well it all goes back to the convertible debt as you can see in Figure 2 I sort gave it away. The 20 shares of convertible debt brought in the $10 needed to buy the other 10 units meaning each share has 50% interest in each unit. However when that convertible debt joins the rest it gets the same interest as the rest of the shares 1.9% a 48.1% drop in interest per unit. These new investors do help out the existing investors by getting their interest per unit slashed as illustrated below. (Figure 2)

Share Celeritas Capital

How do you fix this problem, well according to you just raise more money. As long as can keep raising money they can keep improving the asset value per share but the people who are paying for it are the most recent investors in the door. This is also a vicious cycle wherein you have to keep increasing the amount of money you raise in ’s case that is debt and equity sold to the investing public.

For example Figure 3 is from ’s latest quarterly earnings presentation. Now it is important to note that these numbers are far from final. Think of it as ’s preferred way to raise capital over the next 3 years. As Figure 3 shows plans on raising an equal amount of equity and debt between 2025-2027. For a total of $42 billion dollars in capital raised. (Figure 3) They plan to start by raising $5 billion in fixed income and $5 billion in equity this year. With an increase in $2 billion raised from fixed income and from equity per year. (Figure 3)

If we take a trip back to 12/31/2023 we can see had a Bitcoin count of 189,150 and a share count at the same time of 207,690,000 meaning each share has a 0.91% interest in a Bitcoin. You can see this math below on Figure 4 under the total Bitcoin graph in blue. Now lets see how many shares of you could buy instead of buying a Bitcoin back during 12/31/2023. On December 31st 2023 Bitcoin was trading for 42,265.19 and was trading for $63.19 when adjusted for the 10/1 spilt had. So on December 31st 2023 you could have bought 668.88 shares of for the same price you could have bought one Bitcoin which would have been 42,265.19. If you chose to buy the Bitcoin you would have 100% ownership of said Bitcoin however if you went with the shares of you would instead only have ownership of 61% of a Bitcoin. This math is also shown below in Figure 4 above the total Bitcoin chart in blue. Now lets look at the new Bitcoin holdings and new share count. On 9/30/2024 had a total of 252,220 Bitcoins and a share count of 235,110,000 with some quick math we can calculate that each share now has .107% Bitcoin per share. This represents an increase in 17.76% increase in Bitcoin per share for existing share holders. Don’t forget that this is all being funded by the latest group of investors. The next set of numbers I will be using for the price of Bitcoin and are out of date however that really doesn’t matter as this is an example. We have Bitcoin priced at 90,852.88 and shares priced at $340.65. Again we are faced with a choice do we buy a single Bitcoin or the same dollar amount in shares? Well the one Bitcoin would cost you 90,852.88 and you’d have 100% ownership of the Bitcoin or for the same amount of money you could buy 266.704 shares of with each share representing .107% of a Bitcoin you’d own nearly 29% of a Bitcoin! What a deal truly intelligent leverage.

Subscribe now

I hope you can see the issue with ’s business plan if you can even call it that. Not only is it just better to buy Bitcoin yourself if you wish to gain exposure to it. Or buy a Bitcoin ETF. MicroStrategy’s entire system is based on screwing over the last man in to help make existing investors happy. In my view isn’t really a business at least not in the traditional sense its more of a nonstop capital raise party where returns are heavily dependent on attracting new investors. With the capital raises needing to increase in size exponentially as time goes on. Even in a perfect world one day will run out of human beings on this earth who want to invest with them there is only 8 billion people on earth. I don’t know about you but this is starting to sound an awful lot like a certain P word named after a man who went by Charles. Of course I’m not implying that is one of these famous inventions by Mr. Charles P. I am simply pointing out some similarities is all. There is a lot more I could say about MicroStrategy like how they seem to be targeting retail traders for their capital raises or how the equity raises are likely just a buffer for the bond holders or maybe even how Saylor is one of the weirder tech CEO’s. But I think that is enough MicroStrategy for today, if you found this post interesting and you want more coverage on let me know in the comments.

Actionable Insights:

What are some trades you can put on in relation to ? Let’s start with a basic trade you can put on if you believe is overvalued relative to its Bitcoin exposure or due to its fundamentals. You could put on a simple pair trade, long Bitcoin and short MicroStrategy. I won’t recommend putting on this trade yet needs to lose some of its hype for this trade to work in my view. However when the time comes I will be putting this trade on and will be sure to update the Substack. Since is such a volatile stock another simple but profitable trade is setting up a long straddle. A long straddle is an option strategy where you purchase a call and put on the same underlying asset with the same strike price and same expiration. Long straddles benefit from high volatile which as Figure 5 shows is no stranger to high volatile. Long straddles are rather pricey and require decent price movement. That being said I don’t think its a terrible trade for .

Leave a comment

Conclusion:

There is a few things I would like to close with first if you’ve made money trading good trading. I don’t have anything against trading trash or shady stocks in fact it can be quite profitable. The reason I wrote this article was to inform people who are less familiar with and what they are really about. If you are new to investing it is easy to get sucked into the cult of with the tales of intelligent leverage and the like. Also I’m not a Bitcoin or crypto bear or something like that it’s not a huge part of my portfolio but I do have some exposure to the industry. Finally this post was a little different from my usual ones but I hope you learned something or found it enjoyable to read. If you have any questions about my logic or the post in general feel free to leave a comment or send me a direct message. I am happy to hear what others think even if they disagree with my conclusion. With that all being said happy 2025 lets run it this year!

DISCLAIMER: We are not Financial Advisors, and all information presented is for educational purposes ONLY. Financial markets can be highly volatile, so good risk management is a must.