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Eurodollar/Tsy Option Roundup: Rate Hike Bets Back On

US TSYS
BulletMarketsFixed Income
FI option traders have had a heard go of it this wk amid increased rate hike pricing volatility. Thursday's FI option trade remained mixed though upside call and call spread buying lead volumes as underlying Eurodollar and Tsy futures unwound Wed's multiple rate hike pricing.
  • That was until Fed Chair Powell said he is prepared to consider larger than 50bp hikes in Marketplace interview late Thu as the committee adapts to "incoming data and the evolving outlook". Short end weaker while levels adjust lower (again) out the curve to reflect hawkish policy to combat inflation.
  • Not really a tone change in regards to Fed policy -- but how the market tries to anticipate forward guidance in light of inflation metrics remains the challenge as Friday's option trade remained mixed but with more consistent interest in buying rate hike insurance via puts and put spreads.
  • Some highlights: SOFR options: +6,300 SFRQ2 97.25/97.43/97.50/97.62 2x2x1x1 put condors, 0.75 net cr/belly over at 0950:28ET -- structure also traded 2,500 for 1.0. Loading up on downside/rate hike insurance with SFRU2 futures trading 97.65 (-0.075). Treasury 10Y options: +18,000 TYM2 117.5/118 put spds, 4 vs. 119-09/0.08%. Aside from Aug and Dec midcurve put trade, paper did buy over 25,000 Dec 97.00/97.12/97.25 call flys, 1.0.
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FI option traders have had a heard go of it this wk amid increased rate hike pricing volatility. Thursday's FI option trade remained mixed though upside call and call spread buying lead volumes as underlying Eurodollar and Tsy futures unwound Wed's multiple rate hike pricing.
  • That was until Fed Chair Powell said he is prepared to consider larger than 50bp hikes in Marketplace interview late Thu as the committee adapts to "incoming data and the evolving outlook". Short end weaker while levels adjust lower (again) out the curve to reflect hawkish policy to combat inflation.
  • Not really a tone change in regards to Fed policy -- but how the market tries to anticipate forward guidance in light of inflation metrics remains the challenge as Friday's option trade remained mixed but with more consistent interest in buying rate hike insurance via puts and put spreads.
  • Some highlights: SOFR options: +6,300 SFRQ2 97.25/97.43/97.50/97.62 2x2x1x1 put condors, 0.75 net cr/belly over at 0950:28ET -- structure also traded 2,500 for 1.0. Loading up on downside/rate hike insurance with SFRU2 futures trading 97.65 (-0.075). Treasury 10Y options: +18,000 TYM2 117.5/118 put spds, 4 vs. 119-09/0.08%. Aside from Aug and Dec midcurve put trade, paper did buy over 25,000 Dec 97.00/97.12/97.25 call flys, 1.0.