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Eurodollar/SOFR/Tsy Option Roundup

US TSYS

FI option trade focused on better downside put insurance buying interspersed by upside call unwinds Wednesday as underlying futures traded weaker as Fed speakers continued to remind markets inflation is too high and 75bp hike in Sep not off the table.

  • Heavy short end selling continued as StL Fed Bullard on early CNBC interview echoed Daly and Mester's messaging: Fed job "nowhere near" complete in reining in inflation while needing months of "convincing evidence" that inflation has peaked. Meanwhile, SF Daly added Wednesday that markets are ahead of themselves expecting rate cuts in 2023.
  • SOFR option volume outpaced Eurodollar options, salient trade included sale of 20,000 SFRZ2 96.12/97.12 call over risk reversals, 1.25 vs. 96.625/0.48%, buy of 15,000 short Aug SOFR 96.12/96.62 put spds, 10.25-10.75 and 15,000 short Aug 96.12/96.62 put spds, 10.25-10.75.
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