Post-LIBOR Settle Update: Pricing in 75Bp Hikes Evaporates

Lead quarterly EDM2 back to steady at 98.12, middle of narrow overnight range after latest 3M LIBOR set' climbs to new 2-year high of 1.23814% (+0.01328), up +0.02443 for the week so far.

• Balance of Whites (EDU2-EDH3) trade +0.020-0.055 higher, Reds (EDM3-EDH4) gain +0.065-0.055, Greens-Golds (EDM4-EDH7) up +0.055-0.020.
• Carry-over bid from Mon's sharp rally tamps down on market pricing in chances of 75bp hike(s), back to pricing in nearly five 50bp hikes over the next six meetings.
• Start of price inversion holding in front Reds: Red Sep (EDU3) currently trading 96.620 vs. Red Jun (EDM3) at 96.565 -- low measure of confidence in forward policy and/or Fed managing a soft landing/avoiding recession has been priced in for months. Levels start to flatten out (dis-invert) around late Blue Mar'26/Gold Jun'26 trading around 97.14.
• Monday derivatives roundup: Option trade was decidedly bullish for underlying rate futures Monday, consistent buying of low delta calls, unwinding or outright selling puts/put spreads as futures surged.
• The rally saw chances of 75bp hikes start to evaporate after probability of a 75bp hike in May climbed near 75% last week (before Cleveland Fed President Mester pushed back over the need to hike more than 50bp late Friday).
• Underpinning Mon's rally: market put more weight on the demand hit rather than the inflationary pressure from further supply side disruptions on widespread Covid lockdowns prospects in China.