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Early SOFR/Treasury Option Roundup: Hedging Rising Chance of Rate Cut

US TSYS

SOFR and Treasury option trade looking pared on net overnight after better call flow in early London trade. Moderate put trades in Dec/short Dec SOFR and 10Y option reported just as underlying futures stage rally past Tuesday's post-CPI rally, TYZ3 back to mid-September levels. As such, projected rate cut in early 2024 gains momentum: December at 0bp at 5.333%, January 2024 cumulative -1bp (7.1bp pre-CPI) at 5.323%, March 2024 pricing in -33.9% chance of a rate cut (-16% pre-CPI) with cumulative at -9.5bp at 5.238%, May 2024 pricing in -51.8% chance of a rate cut with cumulative -22.4bp at 5.108%. Fed terminal has fallen to 5.335% in Dec'23.

  • SOFR Options:
    • 2,500 0QZ3 95.25/95.43 put spds vs. 0QZ3 95.87/96.00 call spds
    • 3,000 SFRZ3 94.62/94.75 call spds ref 94.63
    • 3,000 0QZ3 94.87/95.12/95.25/95.37 put condors ref 95.71
    • 2,500 0QZ3 95.50/96.00 strangles ref 96.315
    • 6,200 SFRM4 95.25/95.50/95.75/96.00 call condors ref 95.06
    • 3,000 SFRF4 94.56/94.62/94.69 call flys ref 94.775
    • 5,000 0QH4 97.50/98.00 call spds ref 95.945
    • 2,500 SFRM4 95.25/95.62 call spds ref 95.035
  • Treasury Options:
    • 3,000 TYZ3 110/110.5/111 call flys ref 109-06
    • 2,200 TYZ3 108.75/109.5 put spds 36 ref 109-05
    • 4,200 TYZ3 108.75 puts 2 over TYZ3 109.25/109.75 call spds
    • 8,900 TYZ3 107 puts, 1 ref 109-06
    • 9,900 FVZ3 107.25 calls, 2.5 ref 106-04
    • 2,000 TYF4 112.5 calls, 10 ref 109-09.5
    • 2,000 FVZ3 106.5 calls, 7 ref 105-31.75
    • 6,500 TYZ3 110 calls, 4 ref 108-28 to -28.5
    • 1,500 Wed/wkly TY 107.5/108/108.5 put trees, 9 ref 108-28.5

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