Why are you suggesting, for both EUR and CAD rates futures, to sell december 2025 and buy december 2026? why not just buy december 2026?
For instance, for Corra futures, z2025 is at 2.3% vs 2.28% for z2026, as you noted, but do you think z2025 will sell off a bit, pricing in more cuts, or are you just trying to do a relative value and trade for more cuts december to december?
Curious here, for implementation purposes, what's your timing view for the repricing? If the repricing where to happen after z2025 expires, would that complicate one leg of your RV trade?
Related, I'm short CADUSD and if possible, would love your thoughts. Macro view is the same, but I just saw what I think was a more compelling expression on the FX side. Summary of the trade below.
Thanks again for your amazing pieces, I truly do learn a lot.
We express bearish CAD via a CADUSD Jan-26 put spread on CME futures:
• Long UCDF6P 72.5 (CADUSD 0.725 put), IV of 4.65% (BBG last)
• Short UCDF6P 70 (CADUSD 0.700 put), IV of 7.48% (BBG last)
This structure keeps premium tight with a max payout of close to 4x. Current CADUSD
trades ~0.726. Our target is 0.700, where we would exit and crystallize gains. Stop is a daily
close above 0.736. The expression also benefits from historically cheap vol; we’re paying
very little optionality premium for directional exposure. Main risk is a broad USD sell-off,
but base case is CAD underperformance as weak Canadian fundamentals get repriced.
Our take-profit at 0.700 CADUSD lines up with the upper bound of the range reached during
the “peak US exceptionalism” trade earlier this year. We’re not betting on a retest of the full
0.69–0.70 zone, just a drift back to the upper range seen in late 2024 and early 2025, so
we’re willing to cap gains there by selling the 0.70 put. On the other side, a stop on a daily
close above 0.736 marks the upper end of the multi-month consolidation range; a breakout
there would invalidate the timing of our bearish CAD view.
A secondary risk is that the US SOFR curve could price even deeper Fed cuts than today. In our view, that would only materialize in a true US recession scenario, but even then, safe-haven demand should keep the USD bid. Net-net, we still expect CAD to underperform in that left-tail outcome, so the trade holds.
I focused on the spread because I wanted to isolate my rates view in 2026. But you can also buy Dec'26 outright - both works. If you trade the spread, and you need to hold the trade for longer, you could transform the spread trade into an outright long Dec'26 position, i.e., close the short Dec'25 and stay long Dec'26 (if the future expires).
Your CADUSD idea sounds interesting too. I think both expressions work (either in FX or STIR). STIR is probably a bit cleaner if the view is that the BoC has to cut more than currently priced in. FX can be influenced by other factors too. But both works.
i was wondering the same thing, looking at the chart for the 3-month EURIBOR December 2026 futures look like it has a much better R/R. I’m also worried that the repricing for the curve will happen after the expiration for the 3-month EURIBOR December 2025 futures.
Dear Mr. Repo,
It's great to have you and your insights back!
A great read honestly.
A few questions regarding expressions.
Why are you suggesting, for both EUR and CAD rates futures, to sell december 2025 and buy december 2026? why not just buy december 2026?
For instance, for Corra futures, z2025 is at 2.3% vs 2.28% for z2026, as you noted, but do you think z2025 will sell off a bit, pricing in more cuts, or are you just trying to do a relative value and trade for more cuts december to december?
Curious here, for implementation purposes, what's your timing view for the repricing? If the repricing where to happen after z2025 expires, would that complicate one leg of your RV trade?
Related, I'm short CADUSD and if possible, would love your thoughts. Macro view is the same, but I just saw what I think was a more compelling expression on the FX side. Summary of the trade below.
Thanks again for your amazing pieces, I truly do learn a lot.
Best,
Valentino
******************************************************
We express bearish CAD via a CADUSD Jan-26 put spread on CME futures:
• Long UCDF6P 72.5 (CADUSD 0.725 put), IV of 4.65% (BBG last)
• Short UCDF6P 70 (CADUSD 0.700 put), IV of 7.48% (BBG last)
This structure keeps premium tight with a max payout of close to 4x. Current CADUSD
trades ~0.726. Our target is 0.700, where we would exit and crystallize gains. Stop is a daily
close above 0.736. The expression also benefits from historically cheap vol; we’re paying
very little optionality premium for directional exposure. Main risk is a broad USD sell-off,
but base case is CAD underperformance as weak Canadian fundamentals get repriced.
Our take-profit at 0.700 CADUSD lines up with the upper bound of the range reached during
the “peak US exceptionalism” trade earlier this year. We’re not betting on a retest of the full
0.69–0.70 zone, just a drift back to the upper range seen in late 2024 and early 2025, so
we’re willing to cap gains there by selling the 0.70 put. On the other side, a stop on a daily
close above 0.736 marks the upper end of the multi-month consolidation range; a breakout
there would invalidate the timing of our bearish CAD view.
A secondary risk is that the US SOFR curve could price even deeper Fed cuts than today. In our view, that would only materialize in a true US recession scenario, but even then, safe-haven demand should keep the USD bid. Net-net, we still expect CAD to underperform in that left-tail outcome, so the trade holds.
Hey, Thanks for the comment!
I focused on the spread because I wanted to isolate my rates view in 2026. But you can also buy Dec'26 outright - both works. If you trade the spread, and you need to hold the trade for longer, you could transform the spread trade into an outright long Dec'26 position, i.e., close the short Dec'25 and stay long Dec'26 (if the future expires).
Your CADUSD idea sounds interesting too. I think both expressions work (either in FX or STIR). STIR is probably a bit cleaner if the view is that the BoC has to cut more than currently priced in. FX can be influenced by other factors too. But both works.
i was wondering the same thing, looking at the chart for the 3-month EURIBOR December 2026 futures look like it has a much better R/R. I’m also worried that the repricing for the curve will happen after the expiration for the 3-month EURIBOR December 2025 futures.
Thank you Mr. Repo!
And again, glad to have you back.
Best,
Valentino
This was an excellent read. clear, insightful, and to the point.
Thank you very much!