Eurodollar/Treasury Option Roundup

Two days of falling Treasury yields and heavy buying in short end Eurodollar futures (Whites: EDH2-EDZ2 +0.19-0.22; Reds: EDH3-EDZ3 +0.430-0.470) has provided enough of a shift in narrative to draw traders off the sidelines Tuesday. By the close, chances of no hike by the Fed this month had risen to 12%.

• As Russia/Ukraine tension morphed into a ground war over the last six days
• Option trade over the past two weeks had active accounts holding onto downside put positions targeting a minimum of four 25bp quarterly hikes starting in March with another 100bp in 2023. Call buying was brief and short term in nature.
• Tone changed in the current session amid growing opinion that current events will/may derail central bank plans to hike rates as risk-off/safe-haven buying forces yields lower, has now spurred much better upside call buying to hedge chances of less hawkish central bank action.
• April 10Y 130 calls for example saw scale buying over 75k from 12-41 on the day. Eurodollar options trade included buy of 10,000 Jun 99.43/99.56 call spds after decent two-way put volume, some unwinds while legacy positions continued to hold.