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Eurodollar/Treasury Option Roundup, Bullish Rate Hedging

US TSYS
FI option trade remained mixed Thursday though upside call and call spread buying lead volumes as underlying Eurodollar and Treasury futures continued to march higher. Notably, yield curves recovered from early flattening to steeper (2s10s +2.024 at 29.763 vs. 22.474 low) as the short end unwound Wednesday's more aggressive rate hikes from additional three to four 50bps hikes by year end to two over the next two FOMC meetings.
  • Chances of additional hikes in the second half of the year receded Thursday. Cumulative hikes for July (9.5bps) are not far off when the US came in but there have been larger slides on the day further out. Both Sep (133bp) and Dec (181bp) are ~5bp lower than prior to US CPI.
  • Highlight trade included large buying over 80,000 August 97.81 calls from 5.5-6.0 (50k blocked overnight) that fits in well if your expectations are for less hikes in the second half of the year. Of the various put trades, a notable conditional curve spread faded the late curve move: block buy of 6,000 short Aug 96.50/Green Aug 96.75 put spds, 1.0 net debit for the conditional bear flattener.
  • Highlight Treasury option trade included a scale buyer of over 26,000 TYM 121 calls, mostly at 11 and 10,000 TYU 123.5 calls at 33.0. Reminder that June options expire next week Friday. Bullish bond trade included a sale of 8,000 USN 130 puts at 15 and early buy of 7,500 USN 146/147 call spds at 7.
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FI option trade remained mixed Thursday though upside call and call spread buying lead volumes as underlying Eurodollar and Treasury futures continued to march higher. Notably, yield curves recovered from early flattening to steeper (2s10s +2.024 at 29.763 vs. 22.474 low) as the short end unwound Wednesday's more aggressive rate hikes from additional three to four 50bps hikes by year end to two over the next two FOMC meetings.
  • Chances of additional hikes in the second half of the year receded Thursday. Cumulative hikes for July (9.5bps) are not far off when the US came in but there have been larger slides on the day further out. Both Sep (133bp) and Dec (181bp) are ~5bp lower than prior to US CPI.
  • Highlight trade included large buying over 80,000 August 97.81 calls from 5.5-6.0 (50k blocked overnight) that fits in well if your expectations are for less hikes in the second half of the year. Of the various put trades, a notable conditional curve spread faded the late curve move: block buy of 6,000 short Aug 96.50/Green Aug 96.75 put spds, 1.0 net debit for the conditional bear flattener.
  • Highlight Treasury option trade included a scale buyer of over 26,000 TYM 121 calls, mostly at 11 and 10,000 TYU 123.5 calls at 33.0. Reminder that June options expire next week Friday. Bullish bond trade included a sale of 8,000 USN 130 puts at 15 and early buy of 7,500 USN 146/147 call spds at 7.