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Early SOFR/Treasury Option Roundup: Rate Cut Hedging, When & How Much

US TSYS
Better upside call structures reported in SOFR and Treasury options overnight-early NY trade. Underlying futures firmer - TYH4 see-sawing near the top end of range since January 18. Increasing talk of gradually lower inflation and timing of first FOMC rate cut since March 2020 in the lead up to this Wednesday's policy announcement. No action expected from the Fed Wednesday, but dealer estimates of when and how much are varied (GS: 25bp cut in March, 5 total cuts in 2024 to 4.25%; DB 3.75% by year end, UBS 2.75% year end; flipside: Santander est's 50bp by year end to 5%).
  • Projected rate cuts in H1 2024 steady to mixed: January 2024 cumulative -.5bp at 5.324%, March 2024 chance of 25bp rate cut -50.3% vs. -45.5 late Friday w/ cumulative of -13.1bp at 5.198%, May 2024 at -80.8% vs -81.1% Friday w/ cumulative -33.3bp at 4.996%, June 2024 -95.4% vs. -97.4% Friday w/ cumulative -57.2bp at 4.757%. Fed terminal at 5.325% in Feb'24.
  • SOFR Options:
    • over 5,000 0QG4 96.12/96.25 put spds ref 96.34
    • over 15,700 SFRM4 95.00/95.18 call spds ref 95.305
    • 2,000 SFRZ4 95.00/95.37/95.75 put trees ref 96.065
    • 3,000 SFRH4 94.87/94.93/95.00 call flys ref 94.885
    • 4,000 2QG4 96.50/96.25 put spds vs. 96.87 calls ref 96.655 to -.66
    • 2,500 SFRZ4 96.50/97.25 4x5 call spds vs. SFRZ4 95.50 puts x2 ref 96.055 to -0.065
    • 1,500 0QH4 96.25/96.75/97.00 broken call flys vs. 0QH4 95.75/96.00 put spds
    • Block, 3,000 SFRH4 94.87/95.00 call spds, 4.75
    • Block, 5,000 SFRU4 97.50/98.00 1x2 call spds, -1.25/splits
  • Treasury Options:
    • 3,000 TYH4 114/114.5/115/115.5 call condors ref 111-14 to -14.5
    • 2,000 TYH4 111.5/112/112.5/113 call condors, 7 ref 111-14
    • 3,700 TYH4 110.5/112.5 call spds ref 111-15.5
    • 1,800 TYH4 110.5 puts, 24 ref 111-13.5
    • 1,200 TYH4 114.5/115.5/116 broken call trees ref 111-14
    • 7,500 TYH4 111.5/113 call spds, 33 ref 111-15
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