TLT Rises, USO Puts Suggest Inflation Fears Overblown
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- TLT rose two-thirds of a percent as the 10-year yield fell below 4.4%, extending a 5% gain since its recent low, even as US GDP beat expectations and the Fed's preferred inflation gauge printed its hottest reading since October 2023
- Crude oil futures fell roughly $10 from the prior Friday's high, a move the source identifies as reducing the risk of higher inflation and a hawkish central bank response
- USO options activity skewed bearish with about 30% more puts than calls traded Friday; of the $114 million in premium, $81 million was tied to calls, per SpotGamma data
- Phil Streible, chief market strategist at Blue Line Futures, said crude "could get comfortable in the 60-65 range" and that the curve has flattened out
- TLT options also saw puts dominate, with $30 million of $51 million in premium tied to puts and put-selling the most common directional trade; a simultaneous sale of 11,000 80-strike puts and 44,000 55-strike puts brought in about $2.6 million
- Kevin Warsh, the new Fed Chair, told reporters earlier this month the central bank would prioritize developing internal task forces over publicly speculating on interest rate direction
- Streible said "we probably saw the peak in CPI inflation" and predicted the Fed could shift from hawkish to neutral or dovish as inflation comes down
Why it matters: Crude's roughly $10 drop and heavy USO put activity let TLT rally through the hottest PCE print since October 2023, signaling traders view oil — not core prices — as the deciding factor for new Fed Chair Warsh's next move. Streible sees crude settling in the $60-65 range, which would let Warsh pivot from hawkish to neutral.
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