The United States held an auction for 4-week Treasury bills with a yield of 3.605%.
The previous 4-week bill auction yield was 3.61%, which is 0.005 percentage points higher than the latest result.
The minor dip in the 4-week bill yield indicates that the market expects short-term interest rates to remain stable. We see this as a sign that the Federal Reserve will likely hold its policy steady through the next meeting. This reinforces our view that the period of rate adjustments that defined 2025 is firmly behind us for now.
This stability is supported by recent economic data, which shows a moderating but resilient economy. For instance, the latest jobs report for April showed payrolls growing by a steady 180,000, and core inflation has been hovering around a manageable 2.7% for two consecutive quarters. This backdrop gives the Fed little reason to surprise the market with a hawkish or dovish turn.
Given this, we are looking at strategies that profit from low volatility in the front end of the interest rate curve. Selling strangles on September SOFR futures could be an effective way to collect premium, as we don’t anticipate a major breakout from the current range. This is a bet that the market’s expectation for policy stability will hold true over the summer.
We also see this environment as favorable for a continued yield curve steepening trade. Historically, following the end of a Fed cutting cycle like the one we saw in 2025, the spread between 2-year and 10-year Treasury yields tends to widen as long-term growth expectations slowly recover. Using futures to position for a steeper curve remains a core strategy for the coming weeks.
In equity markets, the low and stable short-term rates should keep a lid on broad market volatility. The VIX has been trading in a tight range between 14 and 16 for the past month, a significant drop from the levels seen during the economic slowdown last year. We believe selling out-of-the-money call options on the VIX is a favorable risk-reward trade.
