Early SOFR/Treasury Option Roundup: 10Y Puts Still Fading Rally

Decent SOFR and Treasury option volume overnight, SOFR flow more paired in comparison to continued interest in 10Y Treasury puts. SOFR and Treasury options saw heavy downside put flow Wednesday (*see recap below) even as underlying futures bounced off lows as many accts hold to the post-CPI mindset of significantly delayed rate cuts as the Fed waits for sign inflation is at bay. Put buyers continue to fad a modest bounce in the underlying, picking up slightly cheaper puts this morning.

• Projected rate cut pricing looks steady by mid-year (Jun fully priced): March 2024 chance of 25bp rate cut currently -14.4% w/ cumulative of -3.6bp at 5.293%; May 2024 at -31.2% w/ cumulative -11.4bp at 5.215%; June 2024 -71.2% w/ cumulative cut -29.2bp at 5.037%. Fed terminal at 5.3275% in Feb'24
• SOFR Options:
  • Block, total -26,886 SFRK4 94.75 puts, 3.25 on splits
  • over 6,900 SFRM4 96.37 calls, ref 95.01
  • 8,000 SFRJ4 95.12/95.25/95.37/95.50 call condors ref 95.10
  • 5,000 SFRM4 94.56/94.68/94.81 put flys 2.0 ref 95.005
  • 7,500 SFRJ4 95.00/95.25 call spds ref 95.01
  • 2,000 SFRG4 94.62/94.75/94.81 1x3x2 put flys
  • 3,000 0QH4 96.12/96.25 put spds ref 95.955
• Treasury Options:
  • +50,000 TYJ4 109.5 puts, 30 ref 110-24.5 (total volume over 65k)
  • 5,000 TYJ4 107/108 put spds ref 110-24.5
  • 15,000 TYH4 109/110 put spds 3 over TYJ4 108.5/109.5 put spds
  • 2,500 TUH4 101.87/102.25 put spds ref 102-03
  • 5,000 wk3 TY 110.5/111 2x3 call spds (expire tomorrow)
  • 2,000 TYH4 111/112 put spds ref 110-06.5
• *On Wednesday:
  • +50,000 TYJ4 108/112 put over risk reversals 3 ref 110-00 (open interest +40k in each strike this morning).
  • +40,000 TYH4 109.50 put 24 vs. 109-22.5 (open interest +11,900 on total volume of 117,500) - partially funded by sales in 109.25 and 109 puts (OI +2.5k and 4.9k respectively).