Very important macro events…
April 2025 delivered a $258 billion surplus, driven by tax-season receipts, even as the FY-to-date deficit climbed to about $1.1 trillion
M2 money stock surged to $21.8 trillion by end-March and rose roughly $300 billion in April, underscoring ample liquidity despite Fed tightening. 5-year breakeven inflation sat at 2.42 % on May 22 and drifted only ±1 bp over the prior week, signaling anchored inflation expectations. Fed-funds futures (per CME FedWatch) assign only ~29 % odds to a rate cut at the June 18 FOMC—markets see no change as the base case through summer.
The Treasury is offering dealers an easy outlet to offload old 2-, 5- and 7-year notes, 2-year floating‐rate paper and bills today (and 20y–30y bonds Thursday). Think of it as scheduled injections of liquidity at both ends of the curve. Friday is the first day when anyone still holding front‐month 10-year futures (ZN) must either deliver or roll into the next contract. With ~40 % of positions already rolled, there’s a thinning of liquidity in the front contract—and that always stirs up basis swings and spikes in futures’ vol.
These are mechanical supply/demand events: dealers buybacks absorb paper (dampening yield moves) while the FND roll sucks up futures liquidity (stoking basis‐ and implied‐vol pops).
Bessent argues that small/community banks are hamstrung by one-size-fits-all capital/reg frameworks and regulators who “don’t care about growth.” His point: if that agenda (Basel relief, lighter capital charges on Treasuries, easier ag-lending) moves forward, it would turbocharge bank lending and reduce short-term funding strains. Deregulation would relieve the “dash for cash” (negative swap spreads, widening CDS) by letting banks lend more freely and hoard less high-quality collateral—taking tail-risk off the table.
Whether the 90-day U.S./China pause holds (or snaps back into full-blown 25–30% levies) is the binary that will decide if the Fed/investors lean into that deregulation lifeline or throw up their hands and price in renewed stagflation.
So basically the week’s mechanical liquidity injections in cash Treasuries set the stage for calmer yields, only to be punctuated by futures-driven basis squeezes on FND that rippled through volatility markets.
SPX is bumping up against a resistance ceiling (coding at 5871.44 for SPX and 5885.79 for ES)—and that only two catalysts can drive a decisive breakout above it this week: economic data (e.g. GDP revisions or PCE on May 29–30) or Nvidia’s earnings on May 28. Absent one of those triggers, the index is likely to stall again at the top of its range.
A deeper-than-expected contraction (April GDP –0.3 % annualized) could pull the index lower, while an upside surprise might lift it through resistance, but not a too high beat. Staying within the expectations is healty. Core PCE is expected to ease modestly toward 2.3 % y/y; a significant miss on the downside could embolden the Fed-pause narrative, lifting stocks, whereas stickier prints could reinforce caution.
Also options markets price in a ±7 % move in NVDA on earnings, and given its weight in the SPX (~8.5 %) and SOXX, a strong NVDA print could provide the gamma squeeze needed to push the index back towards 5900.
Now listen,
The Treasury’s liquidity-support buybacks for short (2s, 5s, 7s, FRNs, bills) and long (20–30 yr) maturities give dealers a pre-scheduled outlet to offload off-the-run bonds, which caps sharp yield moves and in turn limits equity pullbacks around those dates. I code 5776.23 for SPX and 5796.33 for ES as pivots momentum-wise).
We can see this in SPX/LTY correlation, it tanked steepely.
Equity risk appetite tends to recover, compressing VIX and another volatility measures.
Short-End Buybacks (Tue) and Long-End Buybacks (Thu) create dampened volatility initially. Futures First Notice Day (Fri) thins the front-month 10-yr futures (“ZN”), sparking basis squeezes and spikes in VIX/VXST.