US: FED Reverse Repo Operation

• After some gyrations in subsequent revisions, the stellar GDP growth in Q3 has, for now, been confirmed at 4.9% annualized.
• Just as surprising however was the lack of payback in latest advance data for Q4, printing 3.3% vs an expected 2.0%.
• A large part of this upside surprise was admittedly no sign of a widely expected drag from changes in inventories, which were flat after adding a strong 1.3pps to Q3 GDP growth, potentially seeing a drag kicked into Q1 data instead.
• Nevertheless, personal consumption still surprised stronger with 2.8% in Q4 after the 3.1% of Q3, buoyed by a further albeit more gradual push lower in household saving rates closer towards 2022 lows and far below pre-pandemic trends as households run down increasingly dwindling “excess savings”.
• The upshot is that GDP growth averaged an annualized 4.1% in 2H23 after 2.15% in 1H23 and 2.6% in 2H22.
• This surge in growth in the second half of 2023 has pushed annual growth to 3.1% Y/Y, far stronger than most expected - the Fed forecast 1.0% in June, 2.1% in Sept and 2.6% just last month.

Tsys looking weaker after the bell, but off late session lows, Mar'24 10Y futures currently -7 at 111-03 vs. 111-00 low, yield at 4.0523% (+.0540). Curves bear flattened on the day: 2s10s -3.150 at -21.048 vs. -17.415 high.

• Busy session to end the week with Tsys extending lows after PCE and Personal Spending data:
  • PCE Deflator MoM (0.2% vs. 0.2% est, -0.1% prior), YoY (2.6% vs. 2.6% est)
  • PCE Core Deflator MoM (0.2% vs. 0.2% est), YoY (2.9% vs. 3.0% est).
  • Personal Spending higher than expected w/ up-revisions to prior: 0.7% vs. 0.5% est, prior upped to 0.4% from 0.2%; Real Personal Spending: 0.5% vs. 0.3% est.
• Tsys extended lows yet again after higher than expected Pending Home Sales MoM a whopping 8.3% increase vs. 2.0% est (prior down-revised to -0.3% from 0.0%), YoY: -1.0% vs -4.3% est, while prior down revised to -5.5% from -5.1%.
• Looking ahead: focus is on the FOMC policy annc on Wednesday, followed by employment data for January on Friday. Treasury’s Quarterly Refunding process for the Feb-Apr quarter also begins with borrowing estimates released on Mon Jan 29 (0830ET), followed by the refunding announcement itself on Wed Jan 31 (also 0830ET).

Better 5- and 10Y Call option trade reported overnight. Meanwhile, SOFR options followed suit with better upside rate structures by midmorning discounting gradually weaker underlying futures from midmorning on. Projected rate cuts in H1 2024: January 2024 cumulative -.6bp at 5.323%, March 2024 chance of 25bp rate cut -45.5% vs. -49.4 on the open w/ cumulative of -12.0bp at 5.209%, May 2024 at -81.1% vs -83.4% earlier w/ cumulative -32.3bp at 5.006%, June 2024 -97.4% w/ cumulative -56.6bp at 4.763%. Fed terminal at 5.325% in Feb'24.

• SOFR Options:
  • Block, 35,000 SFRH4 94.81/84.75 put spds 1.5 over SFRH4 95.12 calls ref 94.865/0.03%
  • Block, +5,000 SFRM4 97.00 calls, 2.0 ref 94.68
  • -2,000 0QM4 97.00/97.50/97.75 broken call flys, 6.5/wings over
  • +4,000 0QM4 95.56/95.81/96.25/96.50 2x2x1x1 put condor, 4.5
  • +20,000 SFRU4 95.25/95.37/95.75/95.87 call condors vs. SFRU4 95.00/95.12 put spread, 0.75 net
  • Block, 5,000 SFRZ4 96.50/97.25/98.50 broken call flys on 2x3x1 ratio, 22.0 net, ref 96.095
  • 2,000 SFRU4 95.75/95.87/96.00/96.12 call condors ref 95.74
  • 2,500 SFRU4 95.87/96.12/96.37 call flys ref 95.75
  • 2,000 SFRJ4 95.00 puts, 4.25 last
  • 1,750 SFRH4 94.87/95.25 call spds
  • Block, SFRU4 95.50/95.75 4x5 call spds vs. 94.75 puts x4
  • Block 4,000 0QJ4 95.93/96.25/96.50 broken put flys, ref 96.56
  • 2,000 SFRM4 95.75/96.06 call spds ref 95.315
• Treasury Options:
  • 2,000 TYM4 109.5/114.5 strangles ref 111-23
  • 1,700 FVH4 108.75/109.75 call spds
  • over 10,500 TYG4 111.75 calls
  • over 11,600 TYG4 112 calls
  • over 13,000 TYH4 112.5 calls, 24 last
  • over 6,500 FVG4 108.25 calls, 1.5 last
  • over 3,000 FVG4 108 calls, 4.5 last
  • Block 5,000 TYJ4 116/117.5 call spds, 5 ref 112-02.5/0.05%