Update on ZQ and SR1 mispricing

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Update on ZQ and SR1 contracts

The bet has moved in our favor with things currently looking like this:

Trade Snapshot

Action	Contract	Price
Buy	ZQZ5	96.2300
Sell	ZQZ5	96.2225
P/L from ZQ		-0.0075
Sell	SR1Z5	96.1325
Buy	SR1Z5	96.0975
P/L from SR1		+0.0350

Performance

The math is straightforward:

• Total P/L: 0.0275 points

• Value: 0.0275 * $4116 = $113.19

• Return: 2.26% on $5,000 capital

Analysis

The scenario that has panned out so far is EFFR expectations dropping a bit (staying relatively stable) while SOFR is rising.

Essentially, the market is starting to price in that SOFR will detach from the Fed target and trade higher, while the EFFR remains high. This validates our view that the market was underpricing the volatility of SOFR compared to the managed EFFR.

We will keep an eye on the bet and look for future possible trades as the spread develops