The Case For Z5Z6 Moving Lower

Kicking rate cuts into 2026.

SOFR bull steepeners are emerging more and more in conversation, particularly with reference to buying SFRZ6 and selling SFRZ5. Expectations of rate cuts being pushed further out into next year are gathering pace, with the Z5Z6 spread moving close to -40bps.

The Fed meeting tomorrow will provide a good finger on the pulse to see if the intention is to sit on their hands due to uncertainty for much of this year.

If this does appear to be the case, there’s a strong argument to be made for Z5Z6 moving lower still, therefore presenting an interesting rates trade for consideration.